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.