Thursday, March 01, 2007

New Data on House Prices

This morning the Office of Federal Housing Enterprise Oversight (OFHEO) released its latest quarterly estimate of house prices in the US, covering the fourth quarter of 2006. From today's press release (pdf file):

WASHINGTON, DC – The rate of home price appreciation in the U.S. remained steady in the fourth quarter of 2006, extending a general trend of deceleration begun earlier in the year. Home prices, based on repeat sales and refinancings, were 1.1 percent higher in the fourth quarter than they were in the third quarter of 2006. This is slightly above the revised growth estimate of 1.0 percent from the second to the third quarter. Prices in the fourth quarter of 2006 were 5.9 percent higher than they were in the same quarter in 2005. Price appreciation in 2006 was substantially smaller than the tremendous price gains of recent years, which ranged from 7.4 percent in 2002 to 13.2 percent in 2005.
The word "steadies" in the context is apparently a euphemism for "moves rapidly toward zero", at least if we look at year-on-year changes in house prices. Today's "House Price Index" (HPI) data basically confirms what we already knew, but it provides some nice extra detail, including good price data by major metropolitan area. Here's a picture of house prices in several major coastal metro areas in the US, including today's newly released data for the end of 2006:

(Note: in all cases the HPI data is deflated by a 6-month moving average of CPI ex. shelter.)

If you prefer seeing the data expressed as the annual rate of appreciation instead of the price level, it looks like this:

One slightly worrying aspect to me about this most recent data is that the fall in appreciation rates (or the move toward real price declines in several cities) is that it is now starting to look like it is not limited to those regions that enjoyed a big house price appreciation episode during 2002-2005. Many interior metro areas in the US missed out on the big house price boom, but are still suffering from a decline in their very modest appreciation rates, as the following picture shows.

One last thing to remember: house prices take a long time to fall, and can fall a long way. During the last downturn in the housing cycle real prices fell by 25-50% in many metropolitan areas over the course of several years. An equivalent fall in this housing market downturn would take these indexes down to around 150 or so by the year 2010.

So be patient. The housing bust has some way to go yet.

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