House prices firmed in May, confirming the end of an extended period of uninterrupted declines that spanned ten months. The Federal Housing Finance Agency (FHFA) reported a 0.4% increase in the monthly purchase-only house price index (HPI) in May up to a seasonally adjusted level of 181.8—their second consecutive monthly increase. While house prices are finally moving in the right direction, they remain 6.3% below their year ago level and are off their April 2007 peak to the tune of 19.6%.
An increase in house prices was observed in six of the nine Census divisions. Solid gains in the HPI were observed in the Mountain (+2.0%) (Arizona, Nevada) and West North Central (+1.0%) (Michigan, Illinois, Ohio)—divisions where house prices continued to decline last month. The East South Central (+1.3%), South Atlantic (+0.9%), East North Central (+0.5%), and New England (0.2%) divisions built on their improvement from the previous month. No change was observed in the Pacific division index. The house price recovery wavered in the Middle Atlantic (-0.8%) (New York, New Jersey, Pennsylvania) and West South Central (-1.0%) (dominated by Texas) divisions, with declines that gave back most of the HPI’s gain from the previous month.
With house prices firming at the division level, we can expect to see solid improvement in the HPI of most states. FHFA releases the state data quarterly, with second quarter HPI data scheduled for release next month. State level HPI data up to the first quarter 2011 are available by following this link.
Firming house prices will support the long-awaited recovery in the housing sector. We expect house prices will remain stable at current levels for the balance of 2011, underpinning a steady improvement in both home sales and housing starts.