Fitch Ratings: Housing Prices Shaky From Region to Region

NEW YORK (MainStreet) -- U.S. Housing prices are up in the West and down in the East, and some areas are seeing spikes and declines in pricing levels at $200,000 and $300,000.

What's up with the gyrations in U.S. real estate, and why is the West leading a tepid market recovery?

Housing prices aside, this week’s real estate outlook seems fairly stable — even slightly bullish.

According to the U.S. Mortgage Brokers Association, mortgage applications were up 6.9% from April 6 to April 13, 2012. Meanwhile, the MBA’s four-week moving average for mortgage applications is up 1.6%, signaling some momentum on the housing front.

The numbers could be misleading. The MBA says the bulk of those applications are refinancing-related and not purchases of single-family homes. About 75% of total mortgage applications are refinancing-related, up from 70% in the prior week, the MBA reports.

“Renewed concerns about sovereign debt in Europe led to a drop in mortgage rates last week, with the 30-year rate tying our survey low, reached in early February,” MBA’s Chief Economist Jay Brinkmann explains in the weekly statement. “Refinance activity picked up in response, increasing 13.5 % for the week. The demand for conventional purchase loans was down only slightly.”

The MBA adds that the average mortgage loan in March was $233,381, up from $225,463 in February — a good sign for the housing, with the largest mortgages in the Pacific Northwest ($337,000).

That’s quite a disparity over the U.S. average mortgage, and it’s also no accident, Fitch Ratings reports  that on a regional basis, home prices are gyrating wildly, a sign of “notable and sustained changes in new home buyer behavior” from consumers.

That’s why the MBA’s Pacific Northwest average home mortgage price may be an outlier. Fitch says the real story is at the lower end of the housing price scale, again on a regional basis.

The U.S. West, for example, has home buying activity for homes under $200,000 almost doubling since 2007 (with 22.9% of single-family homes in the West now selling for under $200,000 –up from 12.2% in 2007).

Homes that sold for $500,000 and over accounted for just 8.6% of new sales in the West, down from 22.7% in 2007, Fitch says.

“The multiyear downturn in the U.S. housing market has driven, and regional differences in the pricing mix remain clear in recent data,” Fitch says. “The average new home prices in the West (particularly California) have undergone a radical structural shift over the last five years, diverging somewhat from other parts of the country.”

Fitch says that home prices in the West are actually rising – up 0.5% in the fourth quarter of 2011, while the rest of country continued to see home prices fall on a year-over-year basis.

Markets in the Midwest, East and South could catch up to the West, but that should start with purchases of smaller homes first, then accelerate as “trade-up” sellers buy more expensive homes.

“While we continue to see the U.S. housing recovery proceeding at an irregular and anemic pace this year, some recent data suggest that buyers nationwide are starting to apply for larger mortgages, probably for trade-up houses,” Fitch reports.

That’s a good long-term signal for the housing industry, but it’s a trip the housing market will likely make at slow-motion speed.

Even so, the market seems to be moving in the right direction, with the West leading the way.