FNC Index Indicates Improving Trends in Underlying Home Value
Oxford, Miss. (May 18, 2011) – Contrary to recent reports of deep home price declines, FNC announced Wednesday that U.S. home prices in March continue to show signs of stabilization following rather mild declines in February, making March the second consecutive month with better-than-expected price momentum.
Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ (RPI) indicated that single-family home prices in March trended slightly upward since February at a seasonally unadjusted rate of 0.1%, consistent with rising home sales during the month. Despite continued downward price pressure from a relatively high volume of foreclosure sales, March marks the first month that home prices have shown a modest one-month gain since the April 2010 expiration of the homebuyer tax credits.
FNC’s RPI – the industry’s first hedonic price index built on a comprehensive database blending public records with real-time appraisals – shows that underlying home value appears to be on the mend. With foreclosure sales accounting for as much as 40% of existing home sales, a significant portion of the price declines captured by several closely watched indices can be attributed to deteriorating property conditions triggered by foreclosure events, not declines in underlying home value. The distinction between changes in fundamental home value and changes in observed home prices is especially important since the latter is heavily weighted by large foreclosure price discounts that do not reflect changes in underlying home value.
All three RPI composites (the 10-MSA, 30-MSA, and National indices) showed relatively stable trends in March, ranging from slightly -0.2% by the 10-MSA composite to slightly +0.1% by the 30-MSA and National composites. On a year-over-year basis, home prices nationwide are 6.3% below the levels attained a year ago. Under the homebuyer tax credits, home prices rebounded strongly starting in March 2010 and rose 1.0% during the month. Because of these relatively higher prices in the base months surrounding the expiration of federal tax credits, using March’s year-over-year price trends to form market expectations can be misleading due to the false appearance of price weakening from February to March.
Within the 30-MSA composite index, home prices moved higher in nearly half of the markets (a total of 14) by an average +1.8%. This is an improvement over both January (about one in 10 markets) and February (about three in 10 markets). Of the remaining 16 markets that experienced price declines from February to March, the average price drop was at a much smaller magnitude (-1.1%).
A number of markets have gained modestly since the start of 2011: Pittsburgh 3.9%, Charlotte 3.2%, San Francisco 2.9%, Columbus 2.8%, Houston 2.3%, and Seattle, San Diego and Washington each are up 2.1%. Detroit and Orlando, on the other hand, lead the nation’s major housing markets in price declines in 2011, each having lost more than 4.0% in the last three months. They are followed by Miami at -2.7%, Nashville -2.5%, Cleveland -2.4%, and Baltimore, Phoenix and Tampa each at -2.3%.
Despite current challenging market conditions characterized by unprecedented activity in mortgage defaults and home foreclosures as well as continued high unemployment, half of the more than 130 markets tracked by the FNC RPI showed positive February-to-March price momentum. At about 2.5%, the March price patterns are generally consistent with typical uptrending seasonal patterns that prevailed during this time of the year before the housing bust.
The near-term outlook for the housing market remains mixed. We expect underlying home value trends to continue to improve as demand for housing gains traction with the advent of spring home buying. In the meantime, observed home price changes – influenced heavily by foreclosure price discounts – may continue to trend downward as property and neighborhood conditions deteriorate from prolonged foreclosures, exacerbated by continued legal wrangling of proper documentation as well as the backlog of defaulted and foreclosed properties. While spring home buying may boost demand and stabilize prices, a more sustained housing recovery will come when signs of fundamental improvements in the economy and the labor market start to emerge more significantly.
The Residential Price Index, created by mortgage technology company FNC, is the industry’s first hedonic price index built on a comprehensive database combining public records and real-time appraisals. For more details, please visit http://www.fncrpi.com/. FNC provides free online access to its research reports.
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