House prices continued to improve in July, with the Federal Housing Finance Agency (FHFA) reporting a 0.8% increase in the monthly purchase-only house price index (HPI). Despite these recent gains, the HPI remains 3.3% below its year ago level and 18.4% below its peak recorded back in April 2007.

An increase in the HPI was observed in eight of the nine Census divisions. The West North Central (+3.6%), East South Central (+3.0%) and Pacific (+1.2%), all achieved solid gains. The South Atlantic (-0.4%) was the only region to experience a decline. The state-level HPI data are only provided quarterly, but the recent improvement in house prices by state can be observed by following this link.

The regional picture has been improving steadily over the past three months with five of the nine regions experiencing an increase in the HPI in May, and six regions with an increase in June. This progression indicates that house prices are firming and the improvements are being experienced in all regions, i.e. the gain in the national number is not the result of strong growth in just a few regions, with others being left behind.

 With the gains over the past three months, the HPI in the West North Central region (Michigan, Illinois, Ohio) is up 0.2% relative to its year ago level. All other regions remain below their July 2010 level. The largest year-over-year declines were in the Mountain (-6.9%), Pacific (-6.7%) and South Atlantic (-5.4%). Not surprisingly, these regions include the states with the most rapid rise in house prices during the first half of the 2000s and the sharpest declines in the second half – Florida, California, Arizona and Nevada. These states have the highest rates of foreclosure and underwater mortgages, thus distressed sales (properties that typically sell at 15% to 20% discount), are likely to have weighed heavily on house prices in these states in the past year.

The recent string of four consecutive gains in the FHFA HPI is promising sign that house prices have reached the trough and are returning to a path of slow but steady increases.