Housing Prices Rise for Second Straight Month

Home prices rose slightly for the second straight month in February, raising hopes that the implosion of the real estate market may finally be bottoming out.

Seasonally adjusted home prices rose 0.7 percent from January to February, according to the Federal Housing Finance Agency's (FHFA) monthly index, released today. Figures for January were corrected to a 1.0 percent increase, down from 1.7 percent reported last month.

Although small, the increases mark the first upturn since a slight uptick in February 2008; otherwise, the index has been in an almost relentless decline over the past two years. Home prices remain 6.5 percent below their level of 12 months before and 9.5 percent lower than when the index peaked in April 2007.

The sustained increase is one of several positive signs for the housing market that have been seen recently. The National Association of Realtors recently reported a 2 percent monthly gain in pending home sales for February and the Commerce Department has reported that new construction starts for single-family homes have held steady the first three months of the year. Demand for mortgages also remains strong, although four-fifths of that is for refinancing rather than purchases.

The stock market rose on news of the increase, but some indications suggest the housing market has yet to reach its bottom. Foreclosures reportedly shot up to an all-time high in March as lenders lifted self-imposed moratoriums, meaning the market will shortly be flooded with a new supply of cheap homes, which could drive down prices again. And while mortgage refinancing continue to rise, the Mortgage Bankers Association reported today that new mortgages for home purchases declined 4.2 percent for the week ending April 17, suggesting that home purchases may be declining as well.

The strongest price increase in the FHFA monthly index was reported in the Pacific region, which posted a monthly gain of 3.8 percent; however, that same region continues to show by far the greatest decrease over the past year, of 19.1 percent. The greatest monthly decrease was in the East North Central region, down 1.2 percent for the month and 4.1 percent since February 2008.