Pick A Number, Any Number

by Peter G. Miller
August 27th, 2008

Home prices showed significant erosion during the past year, according to the latest report from the Office of Federal Housing Oversight, the federal regulator that oversees Fannie Mae and Freddie Mac.

In a news release that is a monument to confusing numbers, OFHEO said that “U.S. home prices fell in the second quarter of 2008 according to OFHEO’s seasonally-adjusted purchase-only house price index. The index, which is based on data from home sales, was 1.4 percent lower on a seasonally-adjusted basis in the second quarter than in the first quarter. This decline was less steep than the 1.7 percent decline in the prior quarter. Over the past year, prices fell 4.8 percent between the second quarter of 2007 and the second quarter of 2008. The decline is the largest in the purchase-only index’s 17-year history, but is much smaller than those of other indexes.”

Got that — “seasonally adjusted” figures for the “purchase only” index.

Then we are told that “OFHEO’s all-transactions House Price Index (HPI) fell 1.4 percent in the latest quarter and was down 1.7 percent over the four-quarter period.”

A different index and one not seasonally adjusted.

Further down we discover, finally, that “while the national purchase-only house price index fell 4.8 percent between the second quarters of 2007 and 2008, prices of other goods and services increased 5.3 percent. Accordingly, the inflation-adjusted price of homes fell approximately 10.1 percent over the latest year.”

What these numbers say is that a lot of people are going to have a terribly difficult time refinancing from toxic loans to FHA mortgage financing because the value of their homes have fallen. That does not bode well for foreclosure numbers.

The figures, however, do suggest a growing market for FHA loans in general. Why? Higher loan limits, lower home prices and an overwhelming urge to find loans without surprises.

OFHEO also reports other findings:

Purchase-only Index:

1. Prices increased over the past four quarters in 12 states.

2. In the West South Central Division, prices rose by 1.5 percent over the past four quarters, but prices declined in all of the other divisions. Prices were weakest in the Pacific Census Division, where they dropped 15.6 percent.

3. Three states–California, Florida, and Nevada–saw prices decline more than 12 percent over the past two quarters.

4. The Census Division with the greatest seasonally-adjusted quarterly price increase was the West South Central Division, which saw prices rise 0.7 percent. The Pacific Census Division, the worst-performing division, experienced a seasonally-adjusted quarterly price decline of 5.0 percent.

All- transactions HPI:

1. The five states with the greatest price appreciation between the second quarters of 2007 and 2008 were: Oklahoma (4.9%), Wyoming (4.4%), South Dakota (3.8%), North Carolina (3.6%), and North Dakota (3.6%). The five states with the sharpest depreciation for the same period were: California (-15.8%), Nevada (-14.1%), Florida (-12.4%), Arizona (-9.2%), and Rhode Island (-4.8%).

2. The MSAs with the greatest appreciation over the past year were Houma-Bayou Cane-Thibodaux, LA (9.1 percent), Decatur, AL (6.4 percent) and Charleston, WV (6.0 percent).

3. Of the 20 ranked cities with the greatest price declines over the last four quarters, all but one (Las Vegas-Paradise, Nevada) were in California or Florida.

4. The MSAs with the sharpest depreciation over the year were Merced, CA (-34.5%), Stockton, CA (-31.7%) and Modesto, CA (-28.5%).

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