National home prices were up slightly in February from a year ago — the first annual increase in more than three years — but are expected to give up those gains and more later this year, according to a report from First American CoreLogic.
First American CoreLogic’s LoanPerformance Home Price Index showed prices up 0.3 percent in February from a year ago, compared to a 0.5 percent year-over-year price decline in January.
The index currently shows a 30.6 percent decline in national home prices from an April 2006 peak, or 21.7 percent if distressed properties are excluded.
But home prices remain vulnerable to pressure from rising interest rates, “shadow inventory” and the pending expiration of the federal homebuyer tax credit, the report said.
The report predicts a softer recovery than previously projected, forecasting that expected gains in national home prices during the spring and summer will be wiped out in the second half of the year.
First American CoreLogic expects continued year-over-year price declines in 29 of 45 markets tracked in the reports, up from 14 in last month’s forecast.
Markets facing the biggest declines through February 2011 are Detroit (-16.4 percent), Seattle (-5.8 percent), Atlanta (-4.5 percent), Cleveland (-4.1 percent) and Indianapolis (-3.8 percent), the report said.
Markets that are expected to see price appreciation include Denver (5.2 percent), Las Vegas (5 percent), Riverside, CA (3 percent), and Houston (3 percent).
The LoanPerformance Home Price Index is projected to fall 3.4 percent during the year ending February 2011, based on expectations that inventories will grow as interest rates rise and the homebuyer tax credit expires.
The tax credit, along with foreclosure prevention programs and $1.25 trillion in purchases of mortgage-backed securities (MBS) by the Federal Reserve, have contributed to home price stabilization, the report said.
In a recent study, First American CoreLogic ran simulations measuring the impact of the expiration of the tax credit, concluding that home prices could see a 12-month decline of up to 4.2 percent if the the tax credit expires but might increase by up to 4.1 percent if it were extended.
But the Fed wrapped up its MBS purchases last month, and the homebuyer tax credit can only be claimed on homes under contract before May 1 and closing before July 1. The program has been credited with keeping mortgage rates at or near historic lows.
In an April 12 forecast, economists at the Mortgage Bankers Association projected that rates on 30-year fixed-rate mortgages will rise steadily for the next 2 1/2 years, to an average of 5.8 percent in the final quarter of 2010, 6.3 percent in the fourth quarter of 2011, and 6.6 percent in the fourth quarter of 2012.
In some analysts are pessimistic about the effect rising interest rates and the end of the homebuyer tax credit will have on home prices, consumers may be less concerned.
An online survey conducted from April 15-20 by Prudential Real Estate and Relocation Services Inc. found that 65 percent believe the end of the tax credits will have little or no effect on their interest in purchasing a home.
About 46 percent of consumers said they expected real estate prices in their area to increase over the next year, with 12 percent expecting prices will decline. Over the next five years, 79 percent expect real estate prices to increase, with 20 percent expecting that prices will increase substantially, the survey said.