National home prices, including distressed sales, increased by 0.3% in February 2010 compared to February 2009, according to First American CoreLogic and its LoanPerformance Home Price Index (HPI). This was an improvement over January's revised year-over-year price decline of 0.5%. Excluding distressed sales, year-over-year prices increased in February by 0.6% – an improvement over the January non-distressed HPI, which fell by 1.1% year-over-year.
On a month-over-month basis, the national average HPI fell by 2% in February 2010 compared to January 2010, which was steeper than the previous one-month decline of 1.6% from December to January. Prices are typically weak in the winter months, so seasonal effects may be driving this one-month change, First American CoreLogic notes.
The HPI forecast turned less optimistic in the latest update, showing a softer recovery than in previous forecasts. The company's forecasts for the inventory of homes for sale have risen, due to expected higher interest rates, the anticipated expiration of tax credits and slower-than-expected sales over the winter due to the weather are all adding to the inventory. Collectively, these effects act to put downward pressure on prices.
"February's year-over-year increase in the HPI breaks through an important psychological barrier," says Mark Fleming, chief economist for First American CoreLogic. "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."
The federal housing stimulus, particularly the home buyer tax credit and the Federal Reserve's mortgage-backed security purchases, artificially boosted demand and restricted supply, analysts say. Additionally, federal foreclosure mitigation programs have decreased the supply of housing inventory, First American CoreLogic says, concluding that the influence of federal housing stimulus outweighs seasonal market influences, particularly the increase in sales in spring 2009.
In a newly published report, "A Simulation: Measuring the Effects of the Housing Stimulus Programs on Future House Prices," First American CoreLogic compares the potential effects of allowing the programs to expire with the potential effects of extending the programs. Two simulations – one with the Federal Housing stimulus extended and one with the federal housing stimulus ending in April 2010 – revealed that the forecasted year-over-year growth rates between the two scenarios ranged from a decline of 4.2% if the tax credits are removed to an increase of 4.1% if the tax credits are extended.
But the company's current forecast, which assumes the expiration of current housing stimulus programs, projects that following a modest increase this spring and summer, the national single-family combined index will decline by 3.4% from February 2010 to February 2011. First American CoreLogic also projects that 29 of the 45 largest Core Based Statistical Areas (CBSAs) will continue to experience price depreciation on a year-to-year basis. Last month's forecast, in contrast, projected only 14 of the largest CBSAs would experience continued depreciation.
Markets that are expected to experience the largest amount of price depreciation through February 2011 are Detroit (-16.4%), Seattle (-5.8%), Atlanta (-4.5%), Cleveland (-4.1%) and Indianapolis (-3.8%). Markets that are expected to experience the biggest appreciation are Denver (5.2%); Las Vegas (5%); Riverside, Calif. (3%); and Houston (3%).
The preponderance of distressed sales continues to exert downward pressure on the indices, the company adds. When distressed sales are excluded from the data, the forecast becomes significantly more optimistic about the future direction of home prices outside of this market segment. The national HPI is projected to increase 4.9% year-to-year when these transactions are omitted from the analysis.
The same is true of many states and CBSAs. For example, there is a 10-percentage-point difference in the year-to-year HPI forecasts for California when distressed sales are included (-1.8%) compared to when they are not (8%).
SOURCE: First American CoreLogic