The Federal Housing Finance Agency (FHFA) monthly purchase-only house price index (HPI) fell a further 0.3% in January to a seasonally adjusted level of 186.5 nationally—its third consecutive month of decline.  Overall, the index has fallen 1.7% (SA) since October and is down 3.9% (NSA) since January 2010. 

The FHFA HPI release includes the monthly price changes for the nine census divisions. A decrease in the HPI was observed in six divisions, with the largest fall observed in the South Atlantic (-1.3%), Mountain (-1.3%) and East North Central (-0.8%).  These divisions include states most affected by the housing market downturn (Florida, Arizona and Nevada) and experiencing the weakest economic conditions (Michigan, Illinois and Ohio).  A moderate house price rise was observed in West South Central (1.6%), which includes Texas, and a modest increase was observed in the Pacific (0.4%) and East South Central (0.4%) divisions.

The decline in house prices over the past three months corresponds with the recent increase in sales of distressed homes – sold at a discount. The National Association of Realtors reported a steady rise in distressed sales in recent months, up from 33% of existing home sales in November 2010 to 39% in February.  This increased volume of distressed sales is putting downward pressure on prices, particularly in markets most affected by the housing market downturn and experiencing weak economic conditions. In spite of this month’s decline, we expect house prices to be flat for the year and show modest growth in 2012.