LEXINGTON, Mass. – House prices in the U.S. ended their two-year slide in the third quarter of this year and edged up by 0.2 percent over the second quarter, according to IHS Global Insight. The uptick was led by a 2.1 percent increase in California, according to a quarterly housing valuation analysis by the economic analysis firm.
In year-over-year terms, house prices increased during the third quarter by 0.9 percent, according to the Federal Housing Finance Agency. This increase is the first since the second quarter of 2007 when the national housing market began its slide. From its peak in 2007, the U.S. housing market is now down 10.7 percent, on average.
While nationally the price index increased, prices still declined from the second quarter in 161 of the top 330 metropolitan areas. This is a significantly positive change compared to 317 metro areas with declines in the fourth quarter of 2008, according to the new House Prices in America, the quarterly U.S. housing valuation analysis from IHS Global Insight. In the third quarter, 169 markets registered price increases.
At the same time, sales of existing homes rose 7.4% in November as buyers took advantage of a federal tax credit for first-time owners.
Sales of previously owned single-family houses, town homes, condominiums and co-ops rose to a seasonally adjusted annual rate of 6.54 million units in November. That's the fastest clip in more than two years, according to the National Association. of Realtors, which compiled the figures based on transaction closings.
The nation's housing market remains troubled, with foreclosures and mortgage defaults continuing to mount in the face of stubborn unemployment. But home prices are no longer in free fall, having improved steadily in recent months as first-time buyers and investors, motivated by cheap prices and low interest rates, have snapped up bank-owned properties.
For the first time since the House Prices in America study began in 2005, no metro areas were extremely overvalued. There were 52 in 2005. For the nation as a whole, the housing market is now slightly undervalued – 8.6 percent when weighted by market value; 10.1 percent when weighted by housing units.
The largest quarter-on-quarter home price declines were 5.6 percent in Bend, Ore., and 5.0 percent in Las Vegas; these metros are now 33.5 percent and 56 percent below their peak prices in 2006. In all, eight metropolitan areas of the 330 studied each quarter have experienced price declines greater than 50 percent from their peaks. Four of the eight, led by Merced, Calif., with a 66 percent price decline, are in California's Central Valley. In all, 128 metro areas have experienced price declines of at least 10 percent from their peak.
Only 16 metro areas have escaped net home price declines since the cycle began. All 16, except Pittsburgh, are in the center of the country, and six are in Texas. Two areas hit hard by the housing downturn – Los Angeles and Miami – recorded third quarter price increases above 4.0 percent.
"While the rate of decline has decreased throughout the year as the market began to stabilize, it's not at all clear that the market is on a recovery path,” said James Diffley, group managing director of IHS Global Insight's Regional Services Group.
"Economic conditions remain dire, with unemployment likely to remain stubbornly near 10 percent for some time. The federal tax credit for first-time homebuyers has played a temporary role in bolstering the market," said Jeannine Cataldi, senior economist and manager of IHS Global Insight's Regional Real Estate Service.
The markets that are still overvalued remain mostly in the Pacific Northwest, though prices are declining in the region.
House Prices in America, a joint effort by IHS Global Insight and PNC Financial Services Group examines the top 330 U.S. real estate markets, representing 78.4 percent of all existing housing units and 86.4 percent of all related real estate value to determine what house prices should be, accounting for differences in population density, relative income levels, and historically observed market premiums or discounts. Markets with valuation premiums above 35 percent were deemed at risk for price corrections based on the typical degree of overvaluation that preceded the 79 known local price declines observed since 1985.
House Prices in America combines a statistical model owned by PNC with data largely developed at IHS Global Insight. More information on IHS Global Insight's housing valuation analysis is available at www.ihsglobalinsight.com/housingvaluation.