U.S. home prices fell at an annualized 6.92% rate in the first quarter, according to the Office of Federal Housing Enterprise Oversight's purchase-only quarterly index. This is the largest decline in the index's 17-year history.
Housing prices have fallen 3.1% in the last year, according to the index.
"These substantial home price declines bring positive and negative news," said OFHEO Director James B. Lockhart in a release. "For homeowners and financial market observers, these declines spell further erosion in home equity levels and potentially more trouble for mortgage markets. To prospective home buyers who have been shut out of homeownership because of affordability constraints, these declines may be welcome news, as are continued low mortgage rates."
As home prices fall, many mortgage holders have found themselves with their debt exceeding their home's value. Negative equity has left them unable to pull money out of their homes or to refinance when subprime balloon payments come due, causing foreclosure rates in many areas to skyrocket.
Another OFHEO index, which includes data from appraisals for refinancing, showed that home prices held steady: The all-transactions House Price Index was flat over the last year and fell only 0.2% in the last quarter.
Other indices have shown big declines over the last year. The 10-city Case-Shiller composite index showed an 8.8% drop; there was a 7.4% drop in the 20-city composite index in February from the same month the prior year. The nationwide median price of single-family homes fell 7.7% in the first quarter from the year-earlier period, according to the latest quarterly survey of the National Association of Realtors.
The OFHEO numbers include only new conforming mortgages: mortgages of less than $417,000 purchased by
. Conforming loan limits were temporarily raised in February, but Fannie and Freddie did not start buying the larger mortgages until after the end of the first quarter.
The survey's results might have been more pronounced if it included nonconforming mortgages: Some areas that have experienced drastic price volatility in recent years have median home prices above the conforming loan limit.
Between 2000 and the nationwide height of housing prices in 2007, home prices rose almost 70% nationwide, according to the OFHEO index. Rent of primary residence only rose 30%, according to the Bureau of Labor Statistics. The gap suggests some of the run-up in home prices may have been the result of a bubble and that housing prices have a long way to go before fully correcting.
But housing prices aren't falling evenly across the country. Many of the areas which saw the greatest run-ups in housing prices are also experiencing the greatest declines. Housing prices in California, Nevada and Florida, for instance, more than doubled between 2000 and their heights in 2006. Housing prices in those states have since fallen 12%, 11% and 8%, respectively, according to the OFHEO's all-transactions housing price index.