The Contrarian: Housing values are not falling

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This blog is an open forum, but it’s dominated by a like-minded crowd: those of us who believe the housing and credit bubbles have popped, and housing prices are declining -- rapidly in some areas, gradually in others.

Today a contrarian view from a guy I respect, mortgage broker and Fed watcher Lou Barnes. He argues that we have our collective head on backwards, at least regarding trends in national housing prices:

‘The financial press is having a wonderful time ginning-up a housing depression, this week shrieking about new home-price data: “Decline in Home Prices Accelerates” (WSJ), emphasizing the Case-Shiller index, down 8.9% in ’07.

More: ‘ Case-Shiller is designed to magnify home-price declines. Mr. Shiller ... has spent the last several years misapplying financial-market principles to real estate, gleefully predicting a 30-40% national crash in home prices.’

More: ‘The design flaw: it captures only sales of homes, obviously heavy with distressed transactions. For the authentic story and great methodology, visit www.OFHEO.gov and its All-Transactions House Price Index, which includes repeat appraisals in refinances, by definition free of distress. By that measure, national home prices in the 4th quarter rose by .8%. Prices fell in only 11 states, and in only five of those were declines in excess of one percent. See page 21 of the report for its critique of Case-Shiller.’

More: ‘At the micro level, some spots are in horrible trouble: of OFHEO’s 291 Metropolitan Statistical Areas, 15 had price declines last year in the 10%-19% range (all CA and FL). And the national market is decelerating: of 39 states with positive appreciation in the 4th quarter, 32 had gains of less than 1%.’

Thanks, Lou.
There’s a very big drawback to applying OFHEO data to Los Angeles: It is pretty much irrelevant to this market because it tracks only conforming loans, those under $417,000. Still, Lou is making an argument about national housing price trends, and for that purpose OFHEO is worth discussing. So discuss away. Send story tips to peter.viles@latimes.com.