House Prices Continue to Grow, with Modest Gains in the Third Quarter


House prices continued to improve in the third quarter, with both major indexes achieving modest gains. The Federal Housing Finance Agency’s purchase only house price index (HPI) rose 0.7% (NSA) and the Case-Shiller U.S. National HPI inched up 0.1% (NSA) from its second quarter level. While both indexes were lower than their third quarter 2010 level, the annual rates of decline decelerated relative to the second quarter – the FHFA index down 3.6% year-over-year in the third quarter compared to 5.7% in the second quarter and the Case-Shiller National index down 3.9% compared to 5.8%.

FHFA’s monthly index turned back up in September, increasing 0.7% (NSA), after stumbling with a 0.7% decline in August. However, the five month run of month-over-month gains in the Case-Shiller Composite 10 (CS10) and Composite 20 (CS20) indexes ended in September with declines of 0.4% (NSA) and 0.6%, respectively.

The FHFA quarterly purchase-only HPI showed a third quarter decline in 21 states and the District of Columbia. The largest quarter-over-quarter declines were observed in District of Columbia (-3.68% NSA), Oklahoma (-2.6%), Maryland (-1.6%), Georgia (-1.6%) and Arizona (-1.5%). States with the largest gains included the Florida (+2.5%), Nebraska (+2.4%), Michigan (+2.4%) and Missouri (+2.2%). Year-over-year the largest declines were observed in Nevada (-12.3%), Arizona (-12.0%), Washington (-8. 7%), Idaho (-8.6%) and Georgia (-8.4%). North Dakota (+5.4%), Wyoming (+2.9%), Iowa (+1.3%) and Nebraska (+0.5%) were the only states to experienced an increase in house prices since the third quarter of 2010. For more detail on the HPI trend for each of the states refer to the chartbook on the NAHB website.

On a monthly basis, six of the nine census division covered by the FHFA HPI experienced an increase (NSA, although using SA only one district declined — East South Central [-0.2%]). The largest monthly increases were observed in West North Central (+2.3% NSA), South Atlantic (+1.3%), South Atlantic (+1.3) and East North Central (+1.3). The decline in West South Central, Middle Atlantic and East South Central were modest (-0.7% or less).

Seventeen of the 20 cities covered by the Case-Shiller Index registered declines for the month (NSA), only Washington DC (+1.2%), Portland (+0.1%) and New York (+0.1%) posted a positive month-over-month return in September. Atlanta (-5.9%) experienced the largest decline, with notable declines also observed in Tampa (-1.5%), San Francisco (-1.5%), Las Vegas (-1.4%), Cleveland (-1.2%) and Seattle (-1.1%). Fourteen cities saw improvement in their annual rates of change, but only two, Detroit (+3.7%) and Washington DC (+1.0%), posted positive annual rates of growth. The largest annual rates of decline were observed in Atlanta (-9.8%), Minneapolis (-7.4%), Las Vegas (-7.3%), Tampa (-6.7%), Phoenix (-6.5%) and Seattle (-6.5%). As a result of these declines Atlanta, Las Vegas and Phoenix posted new index lows in September 2011. Charts that present the historical HPI data for each of the 20 metropolitan areas are available by following this link.

The divergence in the monthly FHFA and Case-Shiller indexes reflects different approach to measurement. While both use repeat sales, the Case-Shiller indexes include all mortgages and the FHFA index is limited to Fannie Mae and Freddie Mac acquired mortgages. Also, the Case-Shiller HPIs is calculated as three month moving averages while the FHFA HPI is calculated month-over-month. The Case-Shiller data are more comprehensive and are likely to include a higher level of distressed sales;, which may explain part of the decline in the CS10 and CS20 indexes in September. Also, the three month moving average approach creates a lag that suggests that the factors driving decline in the FHFA index in August are likely to be influencing the decline in the Case-Shiller indexes in September. With the National Association of Realtors indicating that the share of distressed sales has been falling in recent months and the FHFA index ticking back up in September, it is likely that the CS10 and CS20 will turn positive again in October.

While the housing market remains very weak, conditions are showing signs of improvement, with most housing measures (new and existing sales, housing starts, delinquent mortgages and distressed sales) beginning to move in the right direction in recent months. This is easing the downward pressure on house prices and should help to stabilize them. Overall, we expect house prices to show little change over the remainder of 2011, and anticipate house prices will begin to show modest growth through 2012.

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