BLBG: Home Prices Drop 6.5% in February as Mortgage Rates Fuel Demand
U.S. home prices fell 6.5 percent in February from a year earlier, the second-smallest drop in six months, a sign that low mortgage rates may be bolstering demand.
The decline was led by a 19 percent decrease in the region that includes California, the most populous U.S. state, the Federal Housing Finance Agency in Washington said today. The FHFA’s monthly house price index is down 9.5 percent from its peak in April 2007. Prices in February gained 0.7 percent from the previous month.
Mortgage rates have dropped 1.6 percentage points in six months, making houses and condominiums more affordable. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 5.3 percent last week as Americans took advantage of interest rates near record lows. Home sales rose 5.1 percent in February from a month earlier, the National Association of Realtors said March 23.
“As demand firms, and once inventories of houses and a broad range of goods are brought into line with sales, economic activity should begin to stabilize,” Federal Reserve Vice Chairman Donald Kohn said in an April 20 speech in Delaware.
The inventory of properties on the market fell to a 9.7 month supply in February at the current sales pace, down from April’s high of 11.3 months, and sales rose 5.1 percent from a month earlier, the realtors group said.
Price Forecast
U.S. home prices probably will fall 5.1 percent this year to $188,500, less than the 9.3 percent plunge in 2008, according to the realtors group. Home resales probably will rise 1 percent to 4.96 million after a 13 percent drop last year, NAR said in a forecast posted on its Web site.
The housing market may be buoyed by improvements in the banking sector. Treasury Secretary Timothy Geithner said yesterday in testimony to a congressional oversight panel that most banks now have “more capital than they need.” Geithner also said there were signs of “thawing” in credit markets.
The U.S. has pumped more than $590 billion of public money into troubled financial institutions over the last six months through the $700 billion Troubled Asset Relief Program. Geithner said in a letter to the oversight committee yesterday that $109.6 billion remains of the funds authorized by the Emergency Economic Stabilization Act last year.
