The headline house price indexes were down in November, but across the regions results were mixed. The FHFA house price index was down 0.42% on a not seasonally adjusted basis (NSA) in November (but up slightly–0.02%–on a seasonally adjusted basis), while the Standard & Poor’s Case-Shiller House Price Indexes (HPIs) were down 1.0% to 143.9 for the Composite 20 (CS20) index and 0.8% to 157.7 for the Composite 10 (CS10) index on a not seasonally adjusted basis (NSA). (As noted in the past, when observing the Case-Shiller HPI attention should be focused on the NSA numbers, and although not explicitly stated by FHFA, similar caution should be used when observing the FHFA indexes).

The slight decline in the FHFA HPI (NSA) in November was the result of continued weakness in the Mountain division (which is dominated by the problem states of Arizona and Nevada), with a 3.7% decline. This offset gains of 0.75% in the East South Central division (Tennessee and Alabama), 0.65% in the West South Central division (dominated by Texas) and 0.63% in the Pacific division (dominated by California).

For the Case-Shiller indexes, prices were down in 19 of the 20 cities in November. The largest declines were observed in Detroit (-2.7%), Atlanta (-2.5), Chicago (-2.2%), Minneapolis (-2.1%) and Cleveland (-2.0%). The only gain was observed in San Diego (0.1%).

As we advised last month, with the Case-Shiller indexes it was important to look at the big picture, not just the month to month variation. The recent declines in the HPIs of the 20 metropolitan areas should not be over interpreted. House prices in all regions have experienced a high level of volatility as a result of the particular dynamics of the home buyer tax credits (HBTCs). Over the past 20 months there have been two minor peaks in the HPIs of all metropolitan areas (around October 2009 and July 2010), associated with the conclusion of the various rounds of the HBTC. Allowing for this volatility, the overall trend has been either a moderate (9% to 12%) increase (Los Angles, San Francisco, San Diego, Minneapolis and Washington DC), generally (-2% to +2%) flat (Chicago, Dallas, Miami, New York, Phoenix and Seattle), or slightly (-5% to -3%) down (Atlanta, Charlotte, Las Vegas, Portland OR and Tampa).

Today’s house price numbers support our view that the overall house prices trend will be slightly positive, despite a high level of volatility, with no further significant declines. The modest movement in the FHFA HPI in October and November signals strength based on market fundamentals in a post-tax credit environment. Recent strong growth in existing home sales, which were up 12.3% in December and 37.5% since the low in July, is likely to support further improvement in house prices over the next few months.