The decline in home prices in the United States is solidifying as more and more foreclosed houses enter the market and high unemployment and economic uncertainty restrains prospective home buyers.
The Federal Housing Finance Agency (FHFA) reported Tuesday that home prices fell 0.3% in January compared to the -0.2% predicted by economists in the Bloomberg survey. Selling prices in December were revised lower to -1.0% from -0.3%. This is the first consecutive three months fall since December 2009. Home prices were 3.9% lower in January than a year earlier, slightly less than the 4.1% slide in December.
The FHFA index tracks prices of homes whose mortgages are insured by Fannie Mae and Freddie Mac, the two formerly independent government sponsored entities now wholly owned by the American taxpayer.
The FHFA figures confirm two other widely followed housing indicators, the median sale price for existing homes released Monday by the National Association of Realtors (NAR) and the Case Shiller Index.
In the NAR survey the median price for a previously occupied home slipped 1.1% in February after a 6.5% fall in January. Prices have now declined for eight straight months. Inventory rose to 3.49 million units in January from 3.37 million units the previous month.
The monthly Case Shiller index of 20 American cities has also been in decline since last July averaging -0.64% per month. The magnitude of the year over year fall has been rising each month since last October, from -0.85% that month, to -1.62% in November to -2.38% in December. That pace is predicted to continue in January at -3.2% in the Bloomberg Survey. The January numbers will be issued on the 29th of March.
The Federal Reserve quantitative easing program has been buying 70% of new Treasury debt, according to estimates by researchers at PIMCO the world’s largest bond fund. This program’s $600 billion of scheduled purchases will end in June. Without this support prices in the government credit market are almost sure to drop, driving up interest rates.
One of the stated intentions of the Fed program was to keep mortgage rates low. Without government intervention rates could easily move back above 5.0%, where they have already been twice in the past four months. The long term average interest rate for a 30 year fixed rate mortgage in the period from January 2000 until September 2008 was 6.09%. The current nationwide average as of March 21st is 4.79%.
Will the potential 27% mid-summer rise in mortgage rates prompt the Fed governors to a third quantitative easing program? Will anyone want to be long the dollar or Treasuries if it does?
Joseph Trevisani
Chief Market Analyst
FX Solutions
