House Prices Improving, But Results Are Mixed

The quarterly Federal Housing Finance Agency (FHFA) purchase-only house price index (HPI) continued to fall in the second quarter, despite recent improvement in the monthly HPI. According to FHFA, U.S. house prices were 0.6% lower in the second quarter than the first quarter of 2011 and down 5.9% on a year-over-year basis. This represents the 17th consecutive quarterly decline in the purchase-only HPI. Overall, the index has fallen 19.2% since reaching a peak in the first quarter of 2007.

Declines in seasonally adjusted purchase only HPIs from first quarter to second quarter were observed in 31 states. The largest quarter-over-quarter declines were observed in Nevada (-5.5%), Delaware (-5.0%), West Virginia (-4.8%), Arizona (-4. 6%), and Rhode Island (-3.0%). States with the largest sequential gains included the District of Columbia (+7.2%), Hawaii (+5.5%), Oklahoma (+4.1%), Connecticut (+2.1%) and Montana (+1.6%). Year-over-year the largest declines were observed in Arizona (-14.9%), Idaho (-13.7%), Georgia (-13.6%), Nevada (-13.4%) and Oregon (-13.1%). Only the District of Columbia (+12.1%), North Dakota (+3.9%) and Oklahoma (+0.3%) have experienced an increase in house prices since the second quarter of 2010. For more detail on the HPI trend for each of the states refer to the chartbook on the NAHB website.

The decline in the quarterly HPI contrasts with recent movement in FHFA’s seasonally adjusted monthly house price index. The monthly HPI experienced its third consecutive increase in June, rising 0.9%, following increases of 0.3% in April and 0.4% in May. The year-over-year change is also significantly different from the quarterly HPI, with the monthly index down 4.3% year-on-year.

On a regional basis, an increase was observed in the seasonally adjusted purchase-only HPI in seven of the nine Census Divisions (and all nine divisions on a not seasonally adjusted basis). East North Central (+3.3%), Middle Atlantic (+1.2%) and West North Central (+1.0%) registered the largest gains, while Pacific (-0.8%) and New England (-0.4%) divisions experienced a decline.

The divergence between the monthly and quarterly HPIs relates to the seasonal-adjustment factors used for each of the indexes. On a not seasonally adjusted basis (NSA), the quarterly index was up 1.7%—a reading consistent with the increases in the NSA monthly HPIs for April (+1.0%), May (+1.2%) and June (+1.4%). The second quarter covers the spring buying season, which is traditionally a favorable period for house purchases; as a result the seasonal adjustment process weighs heavily against the second quarter. While the seasonal adjustment should affect the monthly and quarterly data in a similar way, examination of the numbers indicates an inconsistency in the monthly and quarterly seasonal adjustment factors in the second quarter which is may be responsible for the observed divergence. Focusing on just the NSA quarterly and the monthly data, house prices have turned the corner after an extended decline and, if sustained, will support housing demand going forward.



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