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The forecast for the rest of 2012 shows mild increases building up to a stronger 1.2 percent by year end, according to the Home Data Index™ (HDI) Market Report, recently released by Clear Capital®, with data through March 2012. The HDI Market Report uses a broad array of public and proprietary data sources providing the most timely and relevant analysis available. Methodology details are on page eight of this report.

Report highlights shows that national home values dropped slightly in the rolling quarter-over-quarter analysis. Additionally, tegions posted mild quarterly gains, except the struggling Midwest, which continued its downward slide.

“With the exception of the Midwest, positive growth in rolling quarter-over-quarter prices is an encouraging sign that markets are rebounding from the winter slow down earlier than usual,” says Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “Even with the relatively modest declines seen over the last few months, markets have continued to show signs of bottoming out. The projections we made at the beginning of the year are playing out and we expect to see the nation gain just over 1 percent through the year’s end.

“We are continuing to see, overall short term home value strength against the rising REO saturation.” Villacorta adds. “This is an indication of market stability, and bodes well for the continued growth we’re expecting over the rest of the year.”

Quarter-Over-Quarter Results: Is No News Good News?

At the national level, home prices fell a modest-0.2 percent over the quarter. The West, South and Northeast posted gains of less than 1 percent, but the Midwest lost a significant -2.4 percent. REO saturation, which traditionally pushes down prices, continued to climb in all regions.

The nation held fast over the most recent quarter, and for the fifth time in six months, saw price changes of less than 1 percent. While the US lost -0.2 percent quarter-over-quarter, this decline is milder than last month’s decline of -0.6 percent. This positive trend may be attributed to the beginning of spring after a very mild winter, resulting in the start of an early buying season.

In looking at the quarter-over-quarter performance through March, the typically weak Western region squeezed out a minor 0.1 percent gain in prices over the quarter, which is a healthy improvement of over last month’s losses of -0.4 percent, and shows long awaited upward momentum in the region that posted losses over the past five months. The embattled Midwest region, hit hard over the past three months, continued sliding this month losing -2.4 percent, and was the only region to post losses in the quarter or mark any quarterly price movement more than 2 percent. This result shows how the stability seen by the rest of the nation has yet to embrace the region.

The stable Northeast held true to form and turned in a modest 0.3 percent increase in prices, which was a 0.4 percentage point improvement over the quarterly loss of -0.1 percent posted last month.

The South turned in the strongest short term gains across the nation, with prices climbing up by 0.6 percent, due in part to impressive results in Florida, Texas, and Virginia, all of which are well represented in the best performing MSAs listed later in the report. This gain was a healthy 0.8 percentage point improvement over the loss of -0.2 percent posted last month.

Year-over-Year Prices: Nation and Regions Catching Up to Short Term Gains

The year-over-year analysis found the nation lost -1.4 percent over the period, which is slightly better than February’s year-over-year results of -1.9 percent, indicating a positive trend in yearly numbers.

The yearly numbers across all regions show more significant losses than the quarter-over-quarter numbers, which indicates the nation has possibly hit the bottom of a pricing “valley,” with long term prices starting to reflecting the short term strength. This effect could be in play as all of the regions’ yearly numbers, while still weak, are better than February’s results. The consistent theme for the yearly numbers is that all regions are showing losses, with Northeast posting a small gain. This is similar to the condition seen over the past six months.

Interesting Trends in REO Saturation

For the second month in a row there have been increases in REO saturation for the nation and the regions, helping to confirm speculation the Attorneys General settlement has empowered the affected servicers to become more aggressive in moving their REO backlog onto the housing market.

In March, the national REO rate went up 1.2 points since last month and 1.8 points over the past quarter to hit 27 percent, pointing to an acceleration of REO sales. The Midwest contributed the most to the increase, jumping 3.8 points over the quarter to 34.3 percent, with the other regions all seeing softer increases.

Of particular interest this month is how these changes in REO saturation are affecting prices. In the past, there has been a consistent inverse relationship between changes in REO saturation and prices, but not this month.

While the nation and all regions saw increases in REO saturation over the most recent quarter, changes in prices over the same period were positive for the West, Northeast, and South, describing an unexpected direct relationship. The US and Midwest’s changes in prices over the same period were downward, describing the expected inverse relationship.

The geographies with direct relationships show a pricing resilience to REO saturation that has not been seen in previous HDI analysis. It could be powered by improvement in the jobs numbers recently, rapidly increasing investor activity in certain regions, and the general increase in consumer confidence.

Forecast for Remainder of 2012

The forecast models predict the nation’s prices to increase modestly over the next three months and increase to 1.2 percent growth by the end of the year. This shows the valley shape with current prices at the bottom and an upward trend from now (March) through December of 2012.

The strongest of the regions throughout much of 2011, the Northeast, is expected to gain a modest 0.3 percent over the next three months, but pick up momentum and grow prices by 1.3 percent to wrap up the year. The South is expected to perform the strongest in the short term, growing 0.5 percent over the next three months, and end the year with 1.6 percent growth, exceeding the national forecast by 0.4 percentage points.

The forecast shows the Western Region could be turning a corner. The three month numbers show the region gaining 0.2 percent, and pushing that to a positive 1 percent to end the year. The Midwest is expected to drop -0.6 percent over the next three months, but move into positive territory with a 0.7 percent gain by December.

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