Real Estate Industry Gets A Bit Of Goods News
A morsel of good news for the beleaguered real estate industry is expected to emerge Thursday from a closely watched quarterly government report.
While the report from the Office of Federal Housing Enterprise Oversight probably will show an increase in U.S. home prices for the third quarter compared with last year, it may be the last time the index rises for quite a while, economists say.
Other measurements of home prices have been falling for some time while the government index has continued to rise. The reason, economists say, lies in differences in how home prices are calculated.
The widely tracked Standard & Poor’s/Case-Shiller nationwide housing index, which fell 4.5 percent in the third quarter from last year, focuses on major metropolitan areas and includes expensive properties as well as cheaper ones. The federal government index, while more national in its scope, excludes higher-priced homes and ones financed by riskier mortgages.
A separate report Wednesday from the National Association of Realtors said the median price of a home sold in October declined to $207,800, a drop of 5.1 percent from a year ago, the biggest year-over-year price decline on record.
But many economists consider the OFHEO and Case-Shiller indexes to be better measurements of the housing market than the Realtors’ report.
That’s because both indexes examine price changes for the same properties over time instead of calculating a median price for houses sold during a particular month or quarter.
Doing so prevents the data from being skewed by changes in the mix of houses sold. For example, sales of more expensive homes in any particular month or quarter would push median prices upward.
The government’s index is calculated solely using loans of $417,000 or less that are bought or backed by government-sponsored mortgage companies Fannie Mae and Freddie Mac. Importantly, that excludes properties bought with some of the riskier varieties of home loans that have gone sour this year.
Also, due to the $417,000 limit, the index doesn’t include many homes in expensive markets such as California and the Northeast that saw the biggest increases in prices — and are likely to be in for the biggest declines.
“In a lot of markets, it’s simply ignoring a lot of transactions,” said Richard Moody, chief economist with Mission Residential, a Texas-based apartment complex owner.
However, OFHEO’s index contains a broader sample of the U.S. than the Case-Shiller measurement, which is concentrated in major metropolitan areas.
The federal index, first published in late 1995, calculates home prices back to 1990. It has never dropped compared with a year earlier, though it was close to flat in parts of 1990 and 1991. Since peaking in mid-2005, the rate of appreciation in the index has dropped off sharply, and some expect it to show its first-ever decrease in the coming quarters.
“We think this is probably going to be the last quarter where this index is actually showing year-over-year gains,” said Nigel Gault, chief North American economist for forecasting firm Global Insight. He projects a 1.9 percent gain for the third quarter and a decrease in the fourth quarter.
By contrast, the Case-Shiller index, developed by Yale University economist Robert Shiller and Wellesley College economist Karl Case, peaked in mid-2006 and has shown declines every quarter since.
Lately, trade groups representing Realtors and housing developers have been reacting to news of the sour housing market by pointing out that the real estate market is not a national one, and conditions vary dramatically by market. Many areas untouched by the housing boom remain healthy, the trade groups say.
Nevertheless, as the housing market troubles have unfolded this year, economists have pushed back their view of when the market is likely to recover, especially as major mortgage market players including Fannie Mae and Freddie Mac report steep mortgage losses, and lenders like Countrywide Financial Corp. scale back their riskier lending operations.
Home prices are likely to fall through next year and stay flat in 2009 or longer, said Stuart Hoffman, chief economist for PNC Financial Services Group Inc.
Bit of good news emerges for real estate
By ALAN ZIBEL | The Associated Press