Wednesday, March 25, 2009

Home prices up in January?

The Federal Housing Finance Agency (formerly OFHEO) reported yesterday that its index of home prices rose in January (month-over-month):
U.S. home prices rose 1.7% in January compared with December, the Federal Housing Finance Agency reported Tuesday. It was the first monthly increase in a year.

Home prices are down 6.3% in the past year and are down 9.6% from the peak in April 2006, the agency said. In December, the year-over-year decline was 8.8%. ...

The "unexpected rise" in January was partially due to stronger sales in some markets, FHFA said. The FHFA index attempts to control for such changes in sales patterns, but the adjustment is not perfect, the agency said. The agency warned that its estimate was uncertain and subject to large revisions.

December's index, originally reported as a 0.1% increase, was revised down to a 0.2% decline. ...

The Case-Shiller index, a separate price index that has less geographic reach but better coverage of the bubble mortgages, shows a much larger price decline of 18.6% in 2008 and a drop of 27% from the peak. The Case-Shiller index for January will be released next Tuesday.
The FHFA/OFHEO index has been a bit of an oddball. It was initially very slow to recognize the decline in home prices, then it fell much slower than other indexes, and now it shows a slight rise, when almost all competing indexes are showing declines. I have a lot of troubling believing that the mass of foreclosures, the banking crisis, and the recession are all the result of only a 9.6% decline in housing prices since April 2006, as the FHFA index would suggest.

In conflict with FHFA's reported 1.7% rise in home prices in January (MoM), the National Association of Realtors's measure of home prices showed a 2.9% decline during the exact same period, followed by a further decline of 2.9% in February.

The reasons for the FHFA index's odd behavior is almost certainly due to the fact that it only measures houses with conforming loans. This means it doesn't cover houses with subprime mortgages, and—because of the conforming loan limit—it underweights the parts of the country where the housing bubble was biggest.

Sources: December home prices, January home prices, February home prices.

1 comment:

  1. I agree James OFHEO has been underestimating this for a while (although to be fair, case shiller has been overestimating too).

    My guess though is that if OFHEO & CS maintain their underskewed/overskewed relationship, CS should show a decline in the magnitude of YOY price drops.