OFHEO index: Prices rise at slowest rate in almost 10 years
* OFHEO said home prices DID appreciate nationwide in the first quarter. But the 0.45% gain from the fourth quarter was the smallest QOQ gain since Q3 1996 (0.39%) -- and down significantly from the 2.23% rate of appreciation in Q1 2006.
* Measured from a year ago, home prices were reportedly up 4.25%. That's down from a 12.61% gain in Q1 2007. It's also the lowest YOY rate of appreciation since Q3 1997 (4.12%). The chart above shows how the YOY appreciation rate of U.S. homes has changed over time.
* The highest rates of appreciation occurred in Pacific Northwest and Mountain cities, such as Wenatchee, WA (+25.6%), Salt Lake City, UT (+19.12%), and Grand Junction, CO (+16.82%). The cities that performed the worst were spread throughout high-speculation states like California, Nevada, and Florida (Punta Gorda, FL at -4.57%, Sacramento, CA at -4.41%, Modesto, CA at -4.38%, and Reno-Sparks, NV -3.97%, e.g.) A few cities in Michigan, which has been hit hard by job losses related to the auto industry downturn, also made the list.
All told, 237 of 285 cities tracked by OFHEO showed price gains, while 46 had price declines, and two showed no change in prices. A quarter earlier, OFHEO tracked 282 cities. 256 of those showed price gains, while only 25 had price declines, and one showed no change.
My take: The OFHEO numbers confirm what we're seeing in other home price indices. Price appreciation rates are coming down fast, with outright declines showing up in more and more areas. I expect OFHEO's second-quarter figures to look even more subdued, with the first negative quarterly reading since Q4 1994 (which came in at -0.25%).
Two types of housing markets are getting hit the hardest, price-wise:
1) Areas with the most speculation during the boom -- These metropolitan areas are suffering because they have tons of speculators who are trying to unload losing investments. That's sending for-sale inventories through the roof, forcing sellers to cut prices to generate sales. Home price gains in those regions also exceeded income gains by a wide margin. That has left homes largely unaffordable for area residents.
2) Areas with the worst economic fundamentals -- They're experiencing a more "traditional" housing downturn -- one driven by rising unemployment, plant closings, increasing foreclosures, and more. If economic growth remains lackluster, we'll see more metros fall into this category over time.