Monday, March 05, 2007

OFHEO Home Price Index: Q4 2006

The Office of Federal Housing Enterprise Oversight (OFHEO) released the Q4 2006 results of their housing price index (HPI) last Thursday showing a bit of a strengthening trend in the index.

Recall that the Q3 2006 results showed that Massachusetts, Michigan, New Hampshire, New York and Rhode Island were all experiencing an actual contraction to home prices.

In Q4 on the other hand, all the contracting states are now expanding again and for all but Massachusetts and Michigan, have surpassed their prior peak prices.

Click the following char for a larger version.

As Patrick Lawler, Chief Economist of OFHEO puts it:

“The continuing strength in the economy and decreasing interest rates for borrowers prevented a harder landing in housing markets during the second half of last year… Last quarter, though sharper drops occurred locally, no state had average price declines of as much as one percent,”

One interesting aspect of the OFHEO data that the release didn’t highlight very well was the fact that the national “purchase only” index actually declined. The “purchase only” index tracks changes to appreciation associated to only home purchases by excluding refinancing activity in the source data.

Click the following char for a larger version.

It’s important to note that this is the largest decline to the “purchase only” index since the series was initiated in Q1 1991.

Although the OFHEO report comes to several conclusions (appraisal bias, refinance home types, etc.) as to why the standard index and the “purchase only” index are showing such a dramatic difference, I would argue that prices for new and existing homes for sale have been feeling (and will continue to feel) the most pressure during this downturn.

Lending is still very loose in the prime market and it’s not inconceivable that home appraisers are still essentially supplying current home owners with “blank checks” when appraising home values for refinancing purposes.

The free market, on the other hand, mat not be so forgiving as record sales declines coupled with historic levels of inventory and vacancy backlog lead to significant downward pricing pressure.

To better help visualize the OFHEO home price index, I have implemented a tool that allows you to dynamically view and mix any of the 442 different statistical regions that are reported on.

Click HERE to use the tool which is also found in the upper right list of “Cool Tools”.