All major home price indices point to rising home prices, and a few are reporting some very large percentage increases for a limited number of metro areas. But as home price indices are reporting price gains, why are some home sellers getting push back from buyers on price; are home prices really rising as fast as they are reported to be?
Home price data through June used in the S&P/Case-Shiller Home Price Index (spindices.com) released August 23rd indicated a second quarter National Index increase of 7.1%, while a 2.2% increase was reported during June in the 10-City and 20-City Composites. Areas around the country that experienced the largest decreases in home prices have also experienced the highest price gains in the last 12 months. Take for example the Phoenix metro area, where home prices increased 37.1% from the low in 2011. Locally, however, the Washington DC metro area prices increased 1% in June (compared to a 2% rise in May).
Additionally, the House Price Index (HPI) published by Federal Housing Finance Agency (FHFA) indicated that home prices rose 2.1% nationally during the second quarter (fhfa.gov). And although the HPI is up 7.2% compared to the second quarter of last year, the seasonally adjusted monthly index was up 0.7% in June. Seasonally adjusted home prices for the Silver Spring-Frederick-Rockville, MD metro area indicate a decrease of 0.92% in the last quarter in light of the 4.63% one year increase; and a decrease of 1.1% in the last five years, compared to a 132.65% increase since 1991!
Something’s happening in the housing market, and experts are trying to explain what appears to be moderating home sale prices in an improving (and sometimes described as a “hot”) market. David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices stated that “Overall, the [recent] report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”…“Other housing news is positive, but not as robust as last spring. Starts and sales of new homes continue to lag the stronger pace set by existing homes…”
Some explain the recent modest home sale price growth as an effect of distressed home sales. Some experts hypothesize that the deep discounts paid for distressed homes since the financial crises and housing market crash have skewed home price indices lower than they would have been if the indices only accounted for non-distressed home sales; while home price gains in the last year might be more modest using only non-distressed home sales. This has been an intuitive and viable explanation such that the FHFA published in August a Working Paper (Doerner & Leventis; Distressed Sales and the FHFA House Price Index) on the effects of distressed home sales on the HPI. Although the data in this study was limited to two cities, the results are nonetheless remarkable and revealing.
The moderation of recent home sale prices, along with the findings of the FHFA Working Paper, underscore the importance in consulting with a real estate professional to compile and review neighborhood comps before deciding on the sale price of your home.
By Dan Krell
Copyright © 2013
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