There is great concern on the minds of many today about the decline in home values in the Northeast and in California. After experiencing tremendous losses in Texas and Alaska in recent years, mortgage holders and guarantors are watching developments with a worried eye.

The newly booming $ 100 billion mortgage-backed-securities industry is facing falling ratings and nervous buyers. California and the Northeast make up 25% of the country in population and labor force, but because values are high, the two regions account for much more than 25% of the total mortgage debt.

Of course, regional declines and rising unemployment lead to increases in mortgage delinquency rates, but foreclosures, claims, and losses don't rise dramatically unless collateral values drop as they have in California and the Northeast. Thus, in predicting losses, home price information is critical.

Median Sales Prices Used

Unfortunately, good information on home prices is difficult to come by. For years we were forced to rely on "median sales prices," which can rise and fall with the mix of properties that happens to sell period by period with no appreciation or depreciation of property values.

New techniques can now accurately measure price changes by looking at actual transactions and checking for earlier sales of the same home. Such data are now available for most of the country.

Since the most dramatic movements in home prices have been in Los Angeles and Boston, the discussion below is based on repeat-sales data on 748,000 properties in Los Angeles County and 42,000 properties in greater Boston.

California |Frenzy' Faded Fast

On June 1, 1988, the Wall Street Journal carried a front-page article about the "frenzy" in the California housing market. At its peak, prices were rising 3% a month!

Overall from the peak of the market in early 1990, prices more than doubled.

Since the second quarter of 1990, prices have been falling, and they show no sign of bottoming out. The biggest declines in California have been in properties over $230,000. Since the peak of the market, higher-priced homes have dropped nearly 23%, and hall" of that decline has come in the last year. As of the end of June, prices continued to slide.

Lower Price Range Fell Less

The lower price range has declined somewhat less. Single-family homes in the lower tier show a drop of 6.3% during the past year. Not surprisingly, properties in the middle tier show declines that fall between the two.

There is better news in the Northeast despite continuing economic woes. The pattern of single-family price declines in Boston between 1988 and 1991 is similar to the pattern in Los Angeles. That is, the higher-price homes suffered the biggest drop in value, falling just under 19%.

Some Price Gains Made

Since the 1st quarter of 1991, prices in Boston have shown some improvement. All three tiers showed increases during the spring of 1991 and again in 1992. In both cases, these increases were erased during the fall.

Surprisingly, over the past two years, despite some improvement in spring, the lower-priced properties have continued to drift downward at a rate of about 3% a year.

As of the end of June, lower-priced properties are down 17.8% from their peak, middle-tier properties are down 12.7% and higher-tier properties are down 11.5%. This is the opposite of the pattern in California..

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