The Federal Housing Finance Agency (FHFA) purchase-only house price index (HPI) fell 2.5% in the first quarter of 2011 to a seasonally adjusted index value of 181.0 (down 3.5% to 179.4 NSA). According to the FAFA, this is “… the largest quarterly decline since the fourth quarter of 2008 …”—the peak of the recession. This follows a seasonally adjusted 1.4% decline (-2.4% NSA) in the fourth quarter 2010. On a year-over-year basis, house prices are down 5.6% (NSA) from first quarter 2010 to first quarter 2011.
The rate of change in house prices varies widely across the states. Declines in house prices were observed in 43 states and the District of Columbia on a quarter-over-quarter basis. The largest quarter-over-quarter declines were observed in Idaho (-5.9% SA), Hawaii (-5.5%), Florida (-4.9%), South Carolina (-4.4%), Nevada (-4.3%) and the District of Columbia (-4.1%). States with an increase in house prices, included Arkansas (+1.7%), West Virginia (+1.4%), Wyoming (+0.8%) and Vermont (+0.6%).
While there was a marked decline in the quarterly numbers, the monthly numbers indicate that the downward pressure on house prices is easing. Month-over-month the National HPI was down 0.3% in March to a seasonally adjusted index value of 181.8, and on a not seasonally adjusted basis there was no change (+0.0%), with the HPI remaining at 181.6. This compares to a 1.5% (-0.9% NSA) decline in February and 1.2% (-1.5% NSA) decline in January.
House prices were no longer falling in several states, with a moderate increase observed in the HPI of four of the nine Census divisions between February and March. The largest increase was in the West South Central division (dominated by Texas), up 2.0%. West North Central (+1.4%), New England (+0.3%) and the Pacific (+0.1%) divisions also experienced an increase in house prices. The divisions experiencing a decline included South Atlantic (-2%) (dominated by Florida), East North Central (-0.9% SA), East South Central (-0.9%), Mountain (-0.4%) and Middle Atlantic (-0.2%).
With the monthly data showing a marked slowing in the rate of decline in the National HPI, and house prices already showing improvement in some states, we expect no further significant declines in house prices. Further, we anticipate house prices will begin to shift upwards before the end of the year, ushering in a housing market recovery that is likely to run for several years.
The FHFA report included notice of the introduction a new weighting system for the FHFA HPI. Under the new system the Census Division indexes are constructed as weighted averages of the state-level indexes (previously the Census Division indexes were estimated directly from pooled transaction-level data). The new weighting system also uses the year specific estimates of the housing stock from the American Community Survey (previously based on 2000 decennial Census data). The changes reduce the transaction-weighting bias in both the Census Division and National indexes. The FHFA advise that the changes “…. generally has a modest impact on index estimates, but offers significant theoretical advantages.”