Home Prices Rise in Most Metro Areas; Majority Show Modest Gains

The vast majority of metropolitan areas showed rising or stable home prices in the third quarter with most experiencing modest gains compared with a year earlier, despite a broad decline in existing-home sales, according to the latest quarterly survey by the National Association of Realtors (NAR).

In the third quarter, 93 out of 150 metropolitan statistical areas show increases in median existing single-family home prices from a year earlier, including six areas with double-digit annual gains and another 21 metros showing increases of 6 percent or more; 54 had price declines, and three were unchanged. Regionally, prices rose in both the Northeast and Midwest, as did the national condo price.

Lawrence Yun, NAR chief economist, says the data underscores the fact that all real estate is local. "Some metro areas are hot while others are experiencing localized problems," he says. "The report also shows that home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.

"This quarterly metro home price report is the most meaningful long-term series available on price performance because it looks at all of the available transactions in a given area," he adds. "Unlike other home price series that are based on county records and mortgage securities, which are collected well after the actual transaction date, NAR has the most timely information directly from multiple listing services. We also report actual market prices rather than just the percentage changes so people can compare housing values around the country."

Even with most areas showing improvement, a disruption in higher priced sales impacted the national median existing single-family home price, which was $220,800 in the third quarter, down 2.0 percent from the third quarter of 2006 when the median price was $225,300. The median is a typical market price where half of the homes sold for more and half sold for less.

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Home Prices Drop and Housing Markets Cool

Global Insight, a company for economic and financial analysis and forecasting, has released the first-quarter 2007 update of its study, House Prices in America. The updated U.S. housing valuation analysis shows a widely dispersed drop in single-family home prices, resulting in a continued decline in the incidence of overvaluation in the nation's housing market.

The overall number of single-family housing units deemed to be overvalued fell from 17% in the fourth-quarter 2006 to 14% (revised). Meanwhile, in terms of single-family asset value, the percent deemed to be overvalued fell to 25% from 33% (revised) in the prior quarter.

Nationally, single-family home prices increased in the first quarter at an annualized rate of 2.2%. On a year-over-year comparison, however, prices are up only 3.0%, further normalizing the market with the weakest gain in a decade. Nearly 50% or 157 of the 317 metro areas in the study experienced price declines in the first quarter, accounting for 38% of all single-family units and half of all single-family real estate assets in the nation.

The most highly concentrated declines, while widely dispersed, occurred in areas that had experienced the most dramatic run-up in overvaluation, including California, Florida, New York, and New England. The industrial Midwest was hit hard by the cutbacks in automobile manufacturing. The most dramatic declines among the nation's large metro areas were seen in California's Central Valley. Sacramento Calif., where prices fell by 8.2% inthe past year and 10.0% since 2005, experienced the greatest decline among the nation's large metro areas.

Prices were most resilient in the Pacific and Mountain Northwest, most of Texas, and the Carolinas.

Markets identified in the study as overvalued decreased to 54 metroareas in the first quarter, down from 62 metro area markets (revised) in fourth- quarter 2006. The nation's most overvalued markets are now Bend, Ore., and Prescott, Ariz., highlighting the precarious nature of the price resiliency in the interior West. Meanwhile, the most undervalued markets continued to be in Texas, specifically Dallas (24.9%) and Houston (22.1%).

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Realtors: Soft Home Sales To See Gradual Upturn

Home sales are projected to move in a relatively narrow range with a gradual upturn becoming more pronounced by the end of the year, according to the latest forecast by the National Association of Realtors (NAR).

Lawrence Yun, NAR senior economist, says the market is relatively soft.

"Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom," he says. "Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year. It's important to keep in mind that all real estate is local, and many markets are expected to have higher sales and strengthening prices during the second half of this year."

Existing-home sales are projected to total 6.18 million in 2007 and 6.41 million next year, in contrast with 6.48 million in 2006. New-home sales are forecast at 860,000 this year and 901,000 in 2008, down from 1.05 million last year. Housing starts are likely to total 1.43 million units in 2007 and 1.49 million next year, below the 1.8 million recorded in 2006.

The national median existing-home price should ease by 1.3 percent to$219,100 in 2007 before rising 1.7 percent next year. The median new-home price will probably fall 2.3 percent to $240,800 this year, and then grow by 2.6 percent in 2008.

"We continue to experience a temporary distortion in comparing median existing-home prices," Yun says. "Because the sales volume has shifted from many high-cost areas to moderately priced markets, we're not getting a true apples-to-apples comparison. When you look at other measures, such as this week's price index from Freddie Mac which is based on repeat sales, overall home prices are rising slowly."

"Buyers today need to have a traditional view that housing as a long-term investment is an added benefit to their shelter expense. If so, that investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt," Yun says.

The 30-year fixed-rate mortgage is likely to increase to 6.6 percent in the third quarter and then hover at that level through 2008.


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