Housing Economics

Home prices continued a winning streak in August, the fifth straight month of price gains, but remain lower on a year-over-year basis. Prices rose 0.2% in August but were still down 3.8% year over year. Even though the year-over-year rates are improving, national home prices are still below where they were a year ago. As long as the economy remains weak, foreclosures are still a problem and lending standards stay stringent, not much movement in home prices will be seen. Among individual metro areas, Washington saw the biggest gain 1.6% in August. Detroit and Chicago were close behind at 1.4%. In the past 12 months, Washington prices have gone up 0.3%. In Detroit prices were up 2.4% since August 2010, more than any other area. The Atlanta metro area recorded the steepest decline, down 2.4% for the month. Year-over-year prices were off 6.3%. Minneapolis home prices recorded the worst 12-month drop of 8.5%.

As the home price report came out, changes were announced this week in the Home Affordable Refinance Program, which will enable many homeowners to refinance high-interest mortgages more easily, making their monthly payments more affordable. The plan should enable some to avoid default. Not much impact on home prices or sales is expected though, it will just help existing homeowners stay in their homes. The key reason is that more distressed homes are coming onto the market and will be selling, this tends to drag home prices down. A further projection shows that home prices will decline 3.6% through the end of June 2012. If that forecast comes true, it would mean home prices will plumb a new, post-bubble bottom over the next nine months, down 34% from the mid-2006 peak

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