Home prices fell 0.1% in April in the Federal Housing Finance Agency (FHFA) index for home purchases. Home prices were 3.6% below a year ago. The index has been approximately steady so far this year consistent with steady reports for housing starts and the slight upward trend for home sales. This is more evidence that the national housing recession has bottomed with a gradual upturn likely in the summer. But major regional differences still exist.

So far this year, home prices has risen slightly in the Gulf Coast region which avoided most of the 2004-06 surge in home prices and where the recession arrived late because of the strong energy industry in region. Prices have also risen slightly in the Pacific and New England regions where the decline in housing prices began earliest due to the regions’ very high level of housing prices.

Home prices continue to fall at a double-digit annual pace in the Mountain, Great Lakes and South Atlantic regions. Each of these regions has a relatively high share of financially stressed homeowners being forced to sell to avoid foreclosure as well as discount sales of foreclosed homes. The price decline is nit yet over in these three parts of the country.

Note that the FHFA index includes all purchase mortgages owned or guaranteed by Fannie Mae and Freddie Mac, more than half of all mortgages, but excludes most jumbo and subprime mortgages where homeowner financial stress is the most severe and home prices are falling the most. Hence, the fall in home prices is being driven primarily by the relatively deep recessions in these regions.

The outlook for the national FHFA index is little change for a few more months then a gradual improvement later in the year. As much as a they have dropped, home prices remain high relative to income and housing rental prices so the expected improvement in home prices through 2010 will be gradual compared to the expected improvement in housing starts and home sales.

Separately, the National Association of Realtors reported that May prices for existing homes were 16.8% less than a year ago. The year to year decline was in the 10-12% in the East, South and Midwest and 30.6% in the West. Existing home sales rose 2.4% from April, the second consecutive monthly gain. Much of the gain in the last two months can be credited to the $8,000 tax credit for first time homebuyers and the even larger state tax credit in California.

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