Despite Annual Price Increases, Home Values Take Downward Turn

Although home prices were up on an annual basis in October, national home values fell for the second month in a row and are expected to slow down in the coming year.

Home values rose nationwide 5.2% year-over-year in October, a slower pace than annual appreciate rates in the 7% range experienced during the summer, which Zilllow notes is further proof that the market has begun to “cool off.”

Despite the annual increase, October marked the second consecutive months where national home values declined to a Zillow Home Value Index reading of $162,800—the first consecutive monthly decline since October 2011, according to the October Zillow Real Estate Market Reports.

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Evidence that the market is beginning to “cool off” is furthered by half of the 388 metros covered by Zillow reporting monthly home value depreciation in October from September. Additionally, 10 of the 30 largest metros exhibited by Zillow reported monthly home value declines in October. 

While the months-long period of home value appreciation in the range of 6% to 7% was good while it lasted, it would not continue indefinitely, said Chief Economist Stan Humphries. 

“The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand, are waning,” said Humphries. “In their place, we’re beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward.” 

For the 12-month period from October 2013 to October 2014, Zillow expects national home values to rise just 2.7%, according to the Zillow Home Value Forecast.

Seven of the top 30 metros are also expected to experience value depreciation over the next year, with the biggest declines in St. Louis (-1.5%), Philadelphia (-0.9%) and New York (-0.7%).

Written by Jason Oliva

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  • Home values are NOT taking a downward turn.

    It is the rate of home appreciation nationwide which is taking a downward turn as correctly described in the story. The good news for our industry is that the average is still significantly above the HECM assumption of a little over 3.9%.

    Whether a 5.2% appreciation rate is sufficient to reduce the projected deficit in the HECM portion of the MMI Fund is open to speculation until the release of the actuarial report for last fiscal year. It seems even the actuaries were irrationally exuberant about the future of home values when they projected that the HECM negative portion of the net position in the MMI Fund would drop from $2.799 billion down to $2.668 billion by 9/30/2013 last November. Now FHA is stating that the Net Position for HECM part of the MMI Fund was $5.151 billion on 9/30/2013.

    Understanding how the net position of the HECM part of the MMI Fund is computed is fundamental to understanding why the Republican members of the House are upset about the condition of the HECM program and why FHA has made the changes it did.

    It was very bothering to listen to a very knowledgeable originator declare that the HECM program is not supported by US taxpayers. Of course, anyone who understands anything about the HECM program knows that all of the costs incurred by FHA in operating the HECM program are and always have been paid for exclusively by taxpayers. HECM MIP is only used to offset losses ultimately resulting from balances due on HECMs in excess of the sales proceeds from collateral and short payoffs. To say that taxpayers have never paid a dime on the HECM program is not only misleading but absolutely and fundamentally false. Industry leaders who make or have made such claims have no idea how ridiculous they look in some of our eyes.

    If the HECM program were lost tomorrow, the annual federal budget for FHA could be reduced accordingly.

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