The Standard & Poor’s/Case-Shiller home price index for the month of January recently showed home prices falling in most major metro cities. Down 3.8% year over year in their 20 City Index, and down almost 1% in January from the previous month.
As with any bad news this got a lot of press, in part because housing news in the first quarter of 2012 has been fairly positive and encouraging.
So what caused the price drop? With home sales increasing and inventory levels dropping across the US, why would we see further decline? I spent some time investigating the causes of these recent declines in home prices and this is what I discovered:
First, not all cities are down. Many larger metro cities did see some recent declines in home prices, but other, smaller metro areas like Boise, Idaho have seen a recent upturn in home prices. One reason smaller markets are rebounding more quickly is due to low levels of inventory of homes on the market in comparison to the numbers larger metro markets are showing.
Another reason many cities are experiencing a new dip in home prices is due to the price range in which people are buying. A lot of the recent increases in home sales have been in lower priced homes, especially with more investors trying to buy properties priced at the bottom of the market Whereas typical home buyers tend to purchase in the summer months, investors tend to be most active in winter and therefore, home price statistics often drop November-February. As median prices are determined by an average of all homes being sold in a month, this consequently pulls home prices down across the board.
So, why Boise was one of those markets that held steady during the price dip, I believe other markets will soon be reaping the benefits of home price rebounds as warmer months bring traditional home buyers out of hibernation and the store of lowest-priced houses further diminishes.