Tuesday, August 26, 2008

OFHEO: Home Prices Increased in 30 Out of 50 States Over Last Year, From 2007:Q2 to 2008:Q2

The map above (click to enlarge) is from the latest housing report from the Office of Federal Housing Enterprise Oversight (OFHEO), showing the "Four-Quarter Price Change by State" from 2007:Q2 to 2008:Q2 in the OFEHO House Price Index, which averaged -1.7% for the country.

However, notice that the biggest price decreases over the last year in the OFHEO House Price Index (HPI) have taken place in 4 states: CA (-15.8%), NV (-14.1%), FL (-12.4%) and AZ (-9.2%), see previous CD post (data through 2008:Q1 for that post). After those four states, the next closest price decline was the -4.85% decline in Rhode Island, after AZ (-9.2%). If you take out those four states (CA, NV, FL, AZ) the overall price decline over the last year was only -.75%. That is, the huge price decreases in the four states contributed about -1% to the overall national decline of -1.7% (without weighting for the size of each state).

Further, house prices have increased over the last year in 30 states, ranging from +0.56% for WA to +4.93% in OK, including increases of more than 4% for two states (OK and WY), and increases at or above 3% for 12 states (OK, WY, TX, OK, SD, ND, MS, AL, NC, SC, KY, WV). Finally, more than half of the states (27) have experienced home price increases of 1% or greater.

Comment: The way it gets reported in the media, you would think the entire national real estate is crashing, with home prices everywhere in "free fall," when the reality is slightly different: Over the last year, there have been significant home price corrections in only 4 states of between -9 and -16%, moderate price declines of between -2 to -5% in 9 states, and price increases in 30 states of between +0.56% and +4.93%.


At 8/27/2008 12:36 AM, Blogger John Thacker said...

Even within states there is lots of variation. The DC metro area part of VA has seen some significant price declines, much greater than the state average; the rest of the state, not so much.

Case-Shiller only measures large metro areas, so things generally look worse there. (Charlotte and Dallas are bright spots.) It also measures more expensive homes, which seem to have more price declines.

At 8/27/2008 2:40 AM, Blogger juandos said...

"Even within states there is lots of variation"...

Well this is so true... Heck! Even within some, maybe all counties there's lots of variation...

I live in St. Louis county in Missouri and there's can be a 20+% varient in the price of a home if one prices the home by the square foot...

Locally I do note that areas that have more arcane code when it comes to building new houses or refurbishing older ones do a lot worse price wise than places that don't...

At 8/27/2008 8:51 AM, Anonymous Anonymous said...

The Case-Shiller national home price index begs to differ. Nominal home prices are now back to the summer 2004 level.

Which matters more from a macroeconomic perspective? Manhattan, Kansas or Manhattan, New York?

This is the biggest housing bust since the Great Depression. Get over it.

At 8/27/2008 9:12 AM, Anonymous Anonymous said...

The Case-Shiller index does not differ. It's a national home price index. The post admits a national price decrease but points out that this is mainly attributed to just a few states, with 30 states actually having increasing real estate prices. Your index does absolutely nothing to refute this post; it is a point that was already illustrated and conceded.

The largest bust since the Great Depression just ain't that bad. Get over yourself.

At 8/27/2008 9:27 AM, Anonymous Anonymous said...

Tweedle dee tweedle dum, anon 9:1. OFHEO admits that its methodology understates the bust.

The money quote: The graph clearly displays the relatively
large impact of the first three model modifications—those related to appraisal valuations , the
interval weights, and low-priced, non-Enterprise loans.

In other words, fraud and subprime.

Prices didn't increase in 30 states year over year. That's the point, no?

Your mission should you decide to accept it, is to reconcile the 2 data sets and prove the contrary. Good luck!

At 8/29/2008 1:22 PM, Anonymous Anonymous said...

The average HPI annual changes by state for collateral backing GSE "prime loan" exposures is a useful starting point for analyzing the scope of housing market stress, but it needs some additional color to give an accurate picture. For example,

1. Weight the states by household counts and concentrations of high risk mortgages originated 2004-present.
2. Use the state average HPI shown on the map, combined with state annual home price volatility estimates (also provided by OFHEO, at http://www.ofheo.gov/hpi_download.aspx , as explained in http://www.ofheo.gov/hpi.aspx?Nav=306 ) to estimate the proportion of homes that declined in value over the past year. This number will be substantial in all states with annual average HPI close to 0.

3. The figures determined in #1 and #2 above will be decent predictors of how widespread and severe the housing market stress has become, since "negative equity" percent combined with "high risk origination" percent provides a decent estimator of future mortgage default losses.

4. To get better estimates, repeat the state level analysis at the CBSA level, and combine with HMDA estimates of "high cost" (i.e., high risk) loan concentrations for the same time periods as in 1.

Bottom line: markets are very stressed in the 20 states where HPI change is negative, moderately softening or moving towards stressed conditions in states with HPI positive but close to 0, and will become worse in CBSA markets with high concentrations of high risk loans, wherever they happen to be, because large default rates on the weak loan concentrations spill over to weaken the performance of even less risky loans, due to the negative impact on borrower equity in the collateral behind all loans (not just the initially risky ones).


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