More Evidence of Housing Price Declines

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Calculated Risk pointed us to a story in the Chicago Tribune, “Price slide nationally hides big gains in some metro areas,” which cites the Federal Housing Finance Board survey of 32 metropolitan areas. The report, which the article notes tends to produce more flattering results than some other analyses, found that, averaging new and resale home sales, prices fell by 1.4% in the first quarter.

For the data-minded, here is how this report stacks up:

One reason the housing finance board’s figures tend to be higher than those of other studies is that it includes new homes. Despite the giveaways and other come-ons used by builders to reduce inventories, new homes still lead the way when it comes to setting the price pace.

Another factor is that the survey covers the entire range of home sales, not just those with a mortgage at or below $417,000. That’s the benchmark placed on Fannie Mae and Freddie Mac, two key suppliers of funds for home loans….

Another key distinction is that the finance board’s survey covers a wider swath because it includes sales made with loans from all types of lenders. It is not limited to sales that involve Fannie Mae and Freddie Mac, which now touch, in one way or another, less than 50 percent of mortgages.

It also isn’t limited to houses sold through multiple-listing services….

And finally, the housing finance board’s research covers metropolitan areas as opposed to regions, even if the metro areas viewed are only the largest ones. So it tends to be more targeted than other studies.

The only drawback to the survey is that houses sold with government loans don’t count. Houses bought by families who turn to loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs tend to be priced lower than those sold with conventional loans, so the finance board’s prices skew somewhat higher than those in other surveys.

However, the FHA has been marginalized by subprime lenders, and the Wall Street Journal, in discussing the 2.6% fall in existing home sales from March to April, noted:

The median home price in April of $220,900 was just 0.8% below the year-earlier level. The median price can be misleading because the mix of sales between higher-and lower-priced homes changes. Lately, there may have been fewer sales of cheaper homes because of the huge drop in subprime lending. That would tend to skew the median higher, suggesting home prices may actually be declining more than the reported median suggests.

A shift in the mix of homes sold towards higher prices homes would seem to apply to any report on home price changes over the next few quarters, which means that one should assume that the price declines for comparable homes are likely to be greater.

Finally, readers should note that the metropolitan areas in this survey seem to correspond to MSAs (metropolitan statistical areas), which includes counties in a reasonable commuting distance. For example, the New York MSA has nearly 19 million people. The reason I am fairly confident that this survey is using a more inclusive definition of “metropolitan area” is that it reports that average sales prices in the New York-Long Island MSA were down 1.1%, when prices in Manhattan are up 20%.

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