Washington, D.C. – U.S. home prices fell 1.8 percent in the third quarter of 2008 from the previous quarter, according to FHFA’s seasonally-adjusted purchase-only House Price Index (HPI), which is based on data from repeat home sales. This decline was greater than the 1.4 percent decline in the prior quarter and the largest in the purchase-only index’s 17-year history. Over the past year, prices fell 6.0 percent between the third quarter of 2007 and the third quarter of 2008.

FHFA’s all-transactions HPI, which includes data from home sales and appraisals for refinancings, showed more weakness over the latest quarter than the purchase-only index. The all-transactions HPI fell 2.7 percent in the latest quarter and was down 4.0 percent over the four-quarter period. The four-quarter decline was the largest four-quarter drop in the history of the index, which extends back to 1975.

"The impact of foreclosures and tightening credit conditions weighed heavily on house prices in the third quarter," said FHFA Director James B. Lockhart. "Recent public and private foreclosure prevention efforts, including the Streamlined Modification Program we recently announced with the U.S. Treasury Department, the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac and HOPE NOW, provide some hope for moderating the adverse effect of foreclosures on families and on housing markets. Recent government actions to stabilize financial markets are aimed at countering the tight credit conditions affecting housing."

With this release, FHFA continues its publication of its monthly price index, which was introduced in February. Monthly price trends are shown on pages 8 and 9 and are provided for months through September. Prices fell 1.3 percent between August and September on a seasonally-adjusted basis and are down 7.9 percent since their April 2007 peak.

While the national purchase-only House Price Index fell 6.0 percent between the third quarters of 2007 and 2008, prices of other goods and services rose 6.7 percent. Accordingly, the inflation-adjusted price of homes fell approximately 12.7 percent over the latest year.

"Prices continued their retreat in most areas in the third quarter," said FHFA Chief Economist Patrick Lawler. "While housing affordability has improved and may have drawn in some new buyers, it seems that high inventory levels and buyer uncertainty have had the dominant impact on prices."

Significant Findings:

Purchase-only Index:

1. Prices fell in the latest quarter in 41 states.

2. Eight states exhibited quarterly price declines of more than three percent and three—Nevada, California, and Arizona—saw price declines of more than five percent.

3. All nine Census Divisions experienced price declines in the latest quarter. Prices were weakest in the Pacific Census Division, which experienced a 5.4 percent price decline in the quarter and strongest in the West South Central Division, which experienced a price decline of 0.2 percent.

All-transactions HPI:

4. The states with the greatest price appreciation between the third quarters of 2007 and 2008 were: North Dakota (4.0%), South Dakota (3.9%), Texas (3.2%), Alabama (2.8%), and Oklahoma (2.8%). The states with the sharpest depreciation for the same period were: Nevada (-20.9%), California (-20.8%), Florida (-16.0%), Arizona (-13.5%), and Rhode Island (-8.0%).

5. The MSAs with the greatest appreciation over the past year were: Austin-Round Rock, TX (5.6%), Augusta-Richmond County, GA-SC (5.5%),and Rapid City, SD (5.4%).

6. Of the 20 ranked cities with the greatest price declines over the last four quarters, all but one (Las Vegas-Paradise, NV) was in California or Florida.

7. The MSAs with the sharpest depreciation over the year were: Merced, CA (-42.3%), Stockton, CA (-41.4%), and Modesto, CA (-36.7%).

The complete list of state appreciation rates can be found on pages 18 and 19.
The complete list of city (MSA) appreciation rates is available on pages 32–46.

Highlights/Technical Note

The quarter’s Highlights piece addresses the weighting system used in calculating the national price index. The article analyzes the benefits of and issues surrounding alternative weighting systems that might be employed.

Background

FHFA’s purchase-only and all-transactions House Price Indexes track average house price changes in repeat sales or refinancings of the same single-family properties. The purchase-only index is based on more than five million repeat sales transactions, while the all-transactions index includes approximately 36 million repeat transactions. Both indexes are based on data obtained from Fannie Mae and Freddie Mac for mortgages originated over the past 34 years.

FHFA analyzes the combined mortgage records of Fannie Mae and Freddie Mac, which form the nation’s largest database of conventional, conforming mortgage transactions. The conforming loan limit for mortgages purchased since the beginning of 2006 has been $417,000. Legislation enacted in February 2008 has raised it for this year to as much as $729,750 in high-cost areas in the continental United States for loans originated between mid-year 2007 and the end of 2008. The national loan limit in the continental U.S. will be $417,000 for 2009, with higher limits of up to $625,500 in high-cost areas. The 2009 limits were recently announced and can be found at www.fhfa.gov/DataTools/Downloads/Pages/Conforming-Loan-Limits.aspx. These higher limit loans are included in the HPI.

This HPI report contains four tables: 1) A ranking of the 50 States and Washington, D.C. by House Price Appreciation; 2) Percentage Changes in House Price Appreciation by Census Division; 3) A ranking of 292 MSAs and Metropolitan Divisions by House Price Appreciation; and 4) A list of one-year and five-year House Price Appreciation rates for MSAs not ranked.

This report was previously published by the Office of Federal Housing Enterprise Oversight (OFHEO). FHFA’s full PDF of the report is attached. Also, be sure to visit www.fhfa.gov to use the FHFA House Price calculator. Please e-mail FHFAinfo@fhfa.gov for a printed copy of the report. The next quarterly HPI report, which will release data for the fourth quarter of 2008, will be posted February 24, 2009. The next monthly index will be released on December 23, 2008.

Click here to view the Report