Florida Virtual Houses

Questioning a rise in the FHFA house price index

April 22nd, 2009

Here's what Michelle Meyer of Barclays Capital Research has to say about today's surprising rise in the home price index of the Federal Housing Finance Administration (successor to OFHEO).

The Federal Housing Finance Agency (FHFA) purchase-only home price index surprised on the upside, once again. The index rose 0.7% m/m in February, following a revised 1.0% increase in January. This left home prices down 6.5% y/y - a notable moderation from the rate of decline at the end of last year. The improvement in FHFA home prices comes as a surprise and contradicts other home price measures such as the S&P Case-Shiller index, Radar Logic, and LoanPerformance. The FHFA home price measure only tracks homes with conforming mortgages, which have fared better during this downturn. In addition, Fannie Mae and Freddie Mac put in place foreclosure moratoriums in December and January, which may have distorted the sample by reducing the flow of foreclosed homes into the market. And more generally, the housing data tend to be quite volatile during the winter since there are fewer transactions. After considering these factors, we are hesitant to take too much signal from these data. That said, we will not dismiss them entirely. We do see signs that home sales are stabilizing and months' supply is declining in certain markets.

Overall, we believe that national home prices have further to fall. There is a wave of foreclosures set to enter the market, and we think the economy will remain weak, with the unemployment rate climbing to 9.8% by year-end. In our view, the pace of decline of home prices should start to slow, but we do not see a bottom until 2H10.

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