Annual U.S. Home Prices Fall for First Time Since Depression

U.S. home prices fell in 2007 for the first time since the Great Depression, according to a release from the National Association of Realtors. That made it more difficult for homeowners to sell or refinance properties encumbered by mortgages higher than the value of the houses themselves. Additionally, sales of existing homes fell in January to the lowest in at least nine years, NAR said.

Since January 2007, the median price of an existing home fell 4.6 percent to $201,100. The median price for a single-family home dropped 5.1 percent to $198,700, and condominium and co-op prices fell 1 percent to $220,400.

Mortgage companies including Fannie Mae and HSBC Finance have joined a U.S. Treasury Department-led effort to offer 30-day foreclosure freezes to give delinquent borrowers more time to arrange payment plans. Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. have initially agreed to participate in the effort.

In a February 26 release, the Office of Federal Housing Enterprise Oversight said that while pockets of strength remain, the coasts and the Midwest showed the biggest declines.

OFHEO’s research confirmed NAR’s findings. U.S. home prices fell in the fourth quarter of 2007 according to OFHEO’s seasonally adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.3 percent lower on a seasonally-adjusted basis in the fourth quarter than in the third quarter of 2007. This decline was substantially greater than the 0.3 percent price decline between the second and third quarters. Over the past year, prices fell 0.3 percent, as the fourth quarter decline erased earlier price gains.
However, OFHEO’s all-transactions House Price Index, which includes data from home sales and appraisals for refinancings, showed less weakness than the purchase-only index. The all-transactions HPI rose 0.1 percent over the latest quarter and 0.8 percent over the latest year.

OFHEO Director James B. Lockhart said, “Although prices for home purchases in the [fourth] quarter fell in every state except Maine, only 16 states plus the District of Columbia showed price declines for the full year 2007.”

“The year 2007 showed the first four-quarter decline in the purchase-only index since its earliest data in 1991,” Lockhart added. “However, both OFHEO’s purchase-only index and the all-transactions index show relatively greater house price stability than do other nationwide house price indexes. That may reflect, in part, the greater stability in the prime, conforming mortgage market served by the Enterprises than in other segments of the mortgage market,” said Lockhart.

“Given the recent turmoil in housing markets we thought it would be helpful to provide a greater amount of information about price trends,” Lockhart said.

“While the declines are significant and quite large in some areas, the market still needs to work through its overhang of unsold inventory,” said OFHEO Chief Economist Patrick Lawler. “How much further down that inventory will ultimately push prices will depend on a number of factors, including what happens to interest rates and the overall health of the U.S. economy,” Lawler said.

OFHEO’s purchase-only and all-transactions house price indexes track average house price changes in repeat sales or refinancings of the same single-family properties. The purchase-only index is based on more than five million repeat sales transactions, while the all-transactions index includes more than 34 million repeat transactions. Both indexes are based on data obtained from Fannie Mae and Freddie Mac for mortgages originated over the past 32 years.

The full report is available at www.ofheo.gov/media/pdf/4q07hpi.pdf.