Housing Market Indexes: One Up, One Down

Are U.S. home prices rising or falling?

Two indexes that measure the nation’s housing market, both released Tuesday, are telling seemingly contradictory stories.

One, the prominent S&P/Case-Shiller index of home prices in major metropolitan areas said home prices reached new lows in February, and only three out of 20 cities posted monthly gains.

On the other hand, the Federal Housing Finance Agency said home prices were up 0.4% in February from a year earlier, the first time the index has gained on a annual basis since July 2007. On a monthly basis, the index was up 0.3% from January.

So what’s going on?

In a nutshell, the answer is foreclosures. The FHFA’s index contains only loans backed by Fannie Mae and Freddie Mac, the government-controlled mortgage giants. While defaults on Fannie and Freddie’s loans have soared during the housing bust, the companies still have far lower default and foreclosure rates than mortgage loans packaged into “private label” securities – those issued outside Fannie and Freddie.

“Mortgages that carry Freddie or Fannie’s seal of approval are in much better shape than mortgages overall,” wrote Patrick Newport, an economist with IHS Global Insight. “That is why the FHFA indices are generally inching up while the Case-Shiller indices are generally inching down.”

In addition, the FHFA index covers the nation as a whole, rather than just the 20 cities in the Case-Shiller report.

Even so, the FHFA’s index results don’t mean that the housing market is recovering quickly. The index is still 19.4% below its peak in April 2007 and around the same level as in January 2004.

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