The government home price index that is considered to be the most comprehensive reading of the U.S. market posted the sharpest decline in its 17-year history in according to an Associated Press story. Analysts say the housing problem has yet to bottom out.
The Office of Federal Housing Enterprise Oversight said that home prices fell 3.1 percent in the first quarter compared with the same time last year. Rapidly falling home prices in California, Florida and Nevada skewed national results.
The Standard & Poor’s/Case-Shiller index, another highly regarded index, revealed larger declines for major metropolitan areas. Analysts say, however, that the government index provides a more comprehensive reading of the housing market nationwide. This is especially true for Midwestern states that have been little affected by the real estate recession since prices never skyrocketed there.
The government index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record. “The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation,” wrote the agency’s chief economist Patrick Lawler.
The government index is calculated by tracking mortgage loans under $417,000 that are purchased or backed by the government-sponsored mortgage-finance companies, Fannie Mae and Freddie Mac. Wall Street analysts, however, tend to focus on the S&P index as a way to measure the value of securities backed by subprime mortgages and loans to borrowers in large metropolitan areas.
Earlier this month, economic forecasters surveyed by the Federal Reserve Bank of Philadelphia projected the government index would show a 5.4 percent annual decline in the fourth quarter of 2008. The survey projected the economy would not recover until early 2009.
The housing market continues to spiral out of control as buyers straddle the fence, rising mortgage defaults dumps more homes into a market with excessive surplus, and banks raise their lending standards in response to the surge in mortgage defaults.