This Just In From Boston ... Prices "Could Keep Increasing"

Peter Coy

Mild optimism on housing out of Boston today. The Federal Reserve Bank of Boston issued a 34-page brief (only an economist would call 34 pages "brief") saying that "the national OFHEO house price index could keep increasing well into 2007."

The OFHEO index they're talking about is put out by the Office of Federal Housing Enterprise Oversight every three months. The latest reading in September said that the national median single-family house price rose at a 4.7% annual rate between the first and second quarters of 2006, which was a sharp slowdown from earlier double-digit growth rates.

Note, by the way, the "could" in the above quote. The Boston Fed is playing it extremely safe. Here's another quote from the intro:

"Because house prices are subject to inexplicable movements, this conclusion should be viewed as a plausible extrapolation using historical evidence rather than a forecast. An additional caveat is that mortgage markets and other institutional factors may have changed sufficiently so as to alter the relationship between house prices and the economy ...."

What makes the Boston Fed at least mildly positive on the market? Looking at housing cycles state by state, senior economist Yolanda K. Kodrzyicki and research associate Nelson Gerew conclude that "house prices have rarely decreased in the absence of a state recession."

Here's the tentative bottom line: "Assuming continued increases in personal incomes, an increase in mortgage rates in 2006, and flat apartment rates, an extrapolation suggests that national house price increases are likely to be in the range of 1 to 3 percent in 2006 and 2 to 5 percent in 2007."