House Prices continue to slide in February

House prices continue to slide, with the Federal Housing Finance Agency (FHFA) monthly purchase-only house price index (HPI) down 1.6% (SA) in February—the fourth consecutive decline and the eighth decline in the past 9 months.  Overall, the FHFA index is down 5.7% for the year, and 18.6% below the peak of April 2007.

The HPI was down in all of the nine Census divisions, with the Mountain (-3.7%), East North Central (-2.6%) and New England (-2.0%) divisions experiencing the largest declines.  In the past 12 months the sharpest declines were observed in the Mountain (-11.8%), Pacific (-8.7%), South Atlantic (-5.8%) and East North Central (-5.1%) divisions.  Not surprisingly, these divisions include states most affected by the housing market downturn (Arizona and Nevada [Mountain], California [Pacific] and Florida [South Atlantic]) and experiencing the weakest economic conditions (Michigan, Illinois and Ohio [North East Central]).  

The Middle Atlantic (-6.1%) division (New York, New Jersey and Pennsylvania) also experienced a significant decline over the past 12 months, however it was less affected by the housing market downturn and its overall decline since the peak has been more gradual.  House prices in the other divisions had less of a run up in the mid-2000s and less of a decline since the beginning of the recession. These states have experienced a more moderate house price declines over the past 12 months (West South Central [3.7%], West North Central [3.3%], New England [3.3%] and East South Central [2.9%]). 

The February house prices decline was not unexpected given the very weak housing demand in February, with existing homes sales down 8.9% and new home sales falling to a record low of just 250,000 units. The steadily increasing share of distressed house sales, driven by the high volume of underwater mortgages, is also a significant factor in the house price declines, particularly in the markets most affected by the housing market downturn (Arizona, Nevada, Florida and California).  With a high volume of underwater mortgages and distressed property sales in these most affected markets, further declines in house prices are likely.  Markets less affected have a smaller share of underwater mortgages and distressed home sales, and house prices in these markets are likely to stabilize soon.



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  1. Initially, can we stop calling this a housing “downturn” and refer to it in a more appropriate way. What we are experiencing is a housing “meltdown” that remains in the midst of a death spiral. The failure of banks and the government to find a way to keep people in their homes has eclipsed the greed and immoral behavior that got us here in the first place. The majority of speculators were rung out of the market in the early days of this crisis, and pushing millions of families onto the street is the greatest calamity and public policy debacle of our lifetime. As should be obvious now to everyone, the concept of market clearing when you are dealing with a primary component of the social contract, shelter, is akin to carpet bombing your own people. The devastation wreaked on families and communities has changed the American psyche forever. The Dow has recovered, and corporations are making profits again, but the financial health of the vast majority of our citizens is being systematically destroyed. Can social instability be far behind? The course we are on is also a neutron bomb for the financial sector. Banks and financial institutions are so obssessed with short term profits that they are essentially ignoring the train wreck that is coming. As values continue their downard trajectory the inventory of mortgage loans they hold or that they may be forced to buy back is quickly losing value. At some point the rupture will occur and it will be far worse than Lehman going down. Their is no cushion left in the system. The bottom line is that maintaining the status quo with respect to housing and the mortgage sector is socio-political suicide.

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