In yet another sign of stabilization within the housing market, national home prices increased on a year-over-year basis for the first time in three years in February, according to the LoanPeformance Home Price Index (HPI) released Monday by First American CoreLogic.
Including distressed sales, the HPI jumped 0.3 percent in February 2010 compared to February 2009. This was a notable improvement over January's year-over-year price decline of 0.5 percent. Excluding distressed sales, year-over-year prices increased by 0.6 percent, up significantly over the January non-distressed HPI which fell by 1.1 percent from the prior year.
Compared to the national home price peak in April 2006, FebruaryÃ¢â‚¬â„¢s HPI was down 30.6 percent when distressed sales were included. When distressed sales were excluded, prices were 21.7 below the April peak.
On a month-to-month basis, national home prices fell 2 percent in February compared to January, which was steeper than the previous one-month decline of 1.6 percent from December to January. However, First American noted that prices are typically weak in the winter months, so seasonal effect may have driven the month-to-month decline.
Ã¢â‚¬Å“FebruaryÃ¢â‚¬â„¢s year-over-year increase in the HPI breaks through an important psychological barrier,Ã¢â‚¬Â said Mark Fleming, chief economist for First American CoreLogic. Ã¢â‚¬Å“While the increase in the HPI is encouraging, expectations for increased inventory as federal housing stimulus expires moderates our forecast for 2010. Prices will continue to bounce along the bottom while inventory levels remain elevated.Ã¢â‚¬Â
Looking forward, the HPI forecast for the coming months turned less optimistic in First American's latest update, showing a softer recovery than in previous forecasts.
The outlook for the inventory of homes for sale increased as interest rates are expected to rise, tax credits are set to expire, and slower than expected sales over the winter months due to the weather have added to inventory. Together, these influencing factors are likely to put downward pressure on prices, First American said.
After a modest increase in the spring and summer, the national single-family combined index is projected to decline 3.4 percent from February 2010 to February 2011, assuming the expiration of current federal housing stimulus programs. First American said the collective set of federal programs, including the homebuyer tax credit, the Federal Reserve mortgage-backed securities purchases, and foreclosure prevention programs, likely contributed to the housing market stabilization, so the conclusion of these programs may cause prices to decline.
To better analyze the potential effect of expiration versus extension of the federal housing stimulus programs, First American completed two simulations: One with the federal housing stimulus extended and another with it ending in April 2010. These simulations revealed that the forecasted year-over-year growth rates between the two scenarios ranged from a decline of 4.2 percent if the tax credits are removed to an increase of 4.1 percent if the tax credits are extended.
According to the current forecast, 29 of the 45 largest core based statistical areas (CBSAs) are projected to experience continued price depreciation on a year-over-year basis, up from only 14 out of 45 in last month's forecast. Markets that are expected to experience the largest amount of price depreciation through February 2011 are Detroit, at -16.4 percent; Seattle, at -5.8 percent; Atlanta, at -4.5 percent; Cleveland, at -4.1 percent; and Indianapolis, at -3.8 percent. The biggest year-over-year price appreciation is expected in Denver, at 5.2 percent; Las Vegas, at 5 percent; Riverside, California, at 3 percent; and Houston, at 3 percent.
In its report, First American noted that the preponderance of distressed sales continues to exert downward pressure on the indices. When distressed sales are excluded from the data, the forecast become significantly more optimistic about the future direction of home prices outside of this market segment. In fact, the national HPI is projected to increase 4.9 percent year-over-year when these transactions are omitted from the analysis, and the same is true of many states and CBSAs.