Prices of Homes Backing GSE Mortgages Up 0.2% in Third Quarter

Home prices rose in the third quarter of 2011, according to the ""Federal Housing Finance Agency's"":http://www.fhfa.gov (FHFA) purchase-only house price index released Tuesday.

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The federal agency's index is calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages. It rose 0.2 percent between the second and third quarters.

Even with the marginal uptick during the summer months, FHFA's gauge shows that over the past year, home prices have fallen 3.7 percent when compared to third quarter of 2010.

FHFA’s monthly index for September was up 0.9 percent from its August value. All of the nine census divisions except the East South Central region â€" which includes Kentucky, Tennessee, Mississippi, and Alabama â€" showed increases month-over-month.

""In most regions of the country, third-quarter home values were relatively stable, even in some areas that experienced sharp price declines in preceding quarters,"" said Andrew Leventis, FHFA's principal economist.

""While most housing markets still face stiff headwinds, the fact that some beleaguered states - such as Idaho, Florida and Utah - saw quarterly price increases is a positive development,"" Leventis noted.

While the national, purchase-only house price index fell 3.7 percent from the third quarter of 2010 to the third quarter of 2011, prices of other goods and services rose 4.8 percent over the same period. Accordingly, the inflation-adjusted price of homes fell approximately 8.1 percent over the last year.

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FHFA’s all-transactions house price index, which includes data from mortgages used for both home purchases and refinancings, increased 0.9 percent in the latest quarter but is down 4.3 percent over the four-quarter period.

FHFA released its home price report on the same day as Standard & Poor’s issued third-quarter ""results for the Case-Shiller index"":http://dsnews.comarticles/index/case-shiller-puts-home-prices-39-below-last-year-2011-11-29.

S&P says its national index rose by only 0.1 percent between the second and third quarters, and came in 3.9 percent below year-ago levels.

Patrick Newport, U.S. economist with the research firm ""IHS Global Insight"":http://www.ihsglobalinsight.com explains that the indexes are constructed slightly differently. The key difference, according to Newport, is that Case-Shiller incorporates all sales, including sales financed with subprime loans, while FHFA only covers sales financed with mortgages that Fannie Mae or Freddie Mac guarantee or securitize.

So why are the two indexes telling different stories? Newport says the main reason is probably that Case-Shiller includes a greater proportion of homes selling at “distressed prices”.

What matters more than recent trends is what to expect going forward, according to the IHS economist, and he says the numbers are somewhat discouraging.

Newport points to recent data from the Mortgage Bankers Association, which shows that 12.6 percent of homeowners with mortgages (over 6 million homeowners) were either delinquent on their payments or in foreclosure at the end of the third quarter.

On top of that, a new report released Tuesday by CoreLogic shows that 22 percent of residential properties with mortgages were underwater at the end of the third quarter.

Add to this the current high unemployment and underemployment rates, and Newport says it’s “a recipe for further price declines.”

His projection is that foreclosures, excess supply, and weak demand will drive prices down another 5 to 10 percent. Should the economy slip into another recession â€" which Newport gives 40 percent odds â€" then he says unemployment will climb, foreclosures will rise again, and we’ll see an even bigger drop in home prices.