Annual Home Prices Continue to Depreciate

National home prices, including distressed sales, declined by -7.8 percent in October 2009 compared to October 2008, according to First American CoreLogic and its LoanPerformance Home Price Index (HPI). This was an improvement over September’s year-over-year price decline of -9.5 percent.* On a month-over-month basis, however, national home prices declined by -0.7 percent in October 2009 compared to September 2009.

Excluding distressed sales, year-over-year prices declined in October by -5.8 percent (in September non-distressed sales fell by -6.3 percent year-over-year). This again underscores the negative impact that distressed sales have on the HPI, as distressed sales continue to decline at a larger annual rate than non-distressed sales.

Forecast is for Further Declines

The HPI forecast continues to predict declines in the short term followed by recovery beginning this spring. The 45 largest metropolitan markets are expected to decline an average of another 4.2 percent before bottoming in March of 2010. The declines will be driven primarily by the large levels of foreclosures in these areas. However, improvement in both levels of inventories and unemployment are projected to prevail in the spring of next year, resulting in an average year-over-year appreciation of just under one percent by October of 2010 for these metropolitan markets.

• Cities in the Rust Belt states of Michigan and Ohio have replaced the Sun Belt cities of California, Nevada, Arizona and Florida as those areas for which the largest HPI declines are predicted. Over the next six months, large declines in the HPI are predicted in Detroit (-12.7 percent), Warren-Troy-Farmington Hills (-11.4 percent), and Cleveland (-6.3 percent).
• Cities that are projected to experience the strongest recovery in 2010 are primarily concentrated in the large urban areas of California: San Francisco (+5.7 percent), Los Angeles (+5.0 percent), San Diego (+4.7 percent) and Sacramento (+4.6 percent).

Highlights as of October 2009

• Including distressed transactions, the HPI has fallen -30.1 percent from its peak in April 2006.  Excluding distressed properties, the national HPI has fallen -21.5 percent from the same peak.
• When distressed sales were included Nevada (-24.3 percent) remained the top-ranked state for annual price depreciation followed by Arizona (-17.3 percent), Florida (-15.5 percent), Michigan (-13.9 percent) and Idaho (-12.1 percent). Of these, Nevada, Florida and Michigan also showed month-over-month decreases in their HPI.
• Excluding distressed sales, the worst five states for year-over-year price declines changes slightly. Nevada (-20.2 percent) still holds the top spot, followed by Arizona (-14.7 percent), Florida (-13.7 percent), West Virginia (-10.4 percent) and Washington (-9.4 percent).
• There is a growing pending (shadow) supply of 1.7 million homes as of September 2009, up from 1.1 million homes a year earlier. At the current sales rate, the estimated pending months’ shadow supply is 3 months, up from roughly 2 months a year ago. The combined inventory (visible and pending supply) was 5.5 million homes in September 2009, down from 5.7 million a year ago. The pending supply in combination with high levels of negative equity (23 percent of all residential properties with mortgages as of September 2009) is a significant risk for future home price stability in 2010.

"We are continuing to see improvements in the year-over-year home price change as prices have remained relatively stable since April," said Mark Fleming, chief economist for First American CoreLogic. "The additional government support for the housing market has stimulated demand and restricted supply in 2009. How these government supports are removed in 2010 and the moderation of pending inventory and negative equity will be critical to the continued stability of the housing market," he said.

The entire release, including state-by-state HPI, is available here.