US Home Price Growth Continues to Slow in Third Quarter
Location: McLean
Author:
Eileen Fitzpatrick
Date: Monday, December 4, 2006
Freddie Mac announced that its quarterly national Conventional Mortgage Home Price Index (CMHPI) rose 4.0 percent in the third quarter 2006 on an annualized basis, down from a revised second quarter 2006 annualized rate of 5.2 percent.
“The housing market is feeling the full force of the 17 interest rate hikes initiated by the Fed in June of 2004, bringing the Federal Funds rate from 1 percent to 5.25 percent,” said Frank Nothaft, Freddie Mac vice president and chief economist. “It takes between 6 and 18 months for the economy to fully react to Fed actions and housing is the most interest rate sensitive segment of the economy. Thus, it isn’t surprising that the housing sector is now showing such a strong reaction to higher rates."
“It is important to note that in aggregate, home prices are still rising. However, there are many measures of house values that indicate different trends. The CMHPI measures changes in the values of the same properties over time and is less susceptible to changes in the quality mix of homes that have sold, like measures of median prices can be. Nonetheless, some areas have taken the transition from a sellers market to a buyers market rather hard and it may be some time before both groups get comfortable with the current dynamic.
“Longer term interest rates like those on 30-year fixed-rate mortgages have come down during the third quarter to levels similar to the same period last year. This decline in mortgage rates may soften the blow to housing, convincing buyers who might have been on the fence regarding whether to make an offer on a house, to do so now. While we don’t expect a full turnaround in home sales in the near future, the reprieve from rising rates may stop the decline in home sales and construction heading into next year.
Nationally, home values increased 7.9 percent from the third quarter of 2005 through the third quarter of 2006, down from the 12.7 percent annual growth seen over the four quarters ended in September 2005.
The Mountain states placed first in home price growth at an annualized rate of 7.1 percent during the second quarter, followed by the West South Central states, which showed a slightly smaller gain of 6.7 percent. The East South Central states came next, with a growth rate of 6.4 percent. The Pacific states experienced average price growth of 5.7 percent, while the West North Central states posted an average appreciation rate of 4.0 percent. The South Atlantic states saw an increase of only 2.9 percent and the Middle Atlantic region had an even smaller gain of 2.5 percent. The East North Central states had the second slowest annual appreciation of 2.2 percent annually. Finally, the New England states trailed the list with a growth rate of only 0.3 percent.
“Another benefit to families that could affect their decision of when or where to buy a home is the decline in energy prices that also occurred in the third quarter,” noted Amy Crews Cutts, Freddie Mac deputy chief economist. “Although crude oil prices remain near $60/barrel, they are down more than 20 percent from their previous high. The slowing growth in home values along with the declines in mortgage rates may enable some families that were only looking for homes in the outer suburbs due to affordability concerns to consider living closer to urban areas, especially given the added costs of gasoline and commute times.
“The index values for the Northeast and East North Central regions confirmed the results from the second quarter, which showed negative quarterly growth rates for the first time for New Hampshire and Rhode Island, in addition to the declines in Massachusetts and Michigan. Michigan is the only state showing year-over-year declines in home values and among the largest metro areas, only Detroit is showing an annual decline in values.
“We continue to see weakness in the Great Lakes region impacted by manufacturing job losses. Twenty-five metropolitan areas registered year –over-year declines in average home values, with 20 of these markets in Michigan, Indiana and Ohio. The largest declines was recorded by Muncie, Indiana, with an average 6.8 percent loss in values between the 3rd quarter 2005 and the 3rd quarter 2006. Then Bend, Oregon, showed the largest gain over the past year, with values rising more than 31 percent.”
The Conventional Mortgage Home Price Index shows the following regional performances:
Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 1.7 percent (7.1 percent, annualized) in the third quarter of 2006. In the last 12 months, home values increased 10.8 percent; during the last five years, home values increased 55.6 percent.
West South Central Division (AR, LA, OK, TX): increased 1.6 percent (6.7 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 8.0 percent, and during the last five years, home values increased 29.5 percent.
East South Central Division (AL, KY, MS, TN): increased 1.6 percent (6.4 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 7.7 percent, and during the last five years, home values increased 30.8 percent.
Pacific Division (AK, CA, HI, OR, WA): increased 1.4 percent (5.7 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 11.7 percent, and during the last five years, home values have increased 95.7 percent.
West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 1.0 percent (4.0 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 4.1 percent; over the last five years, home values increased 34.6 percent.
South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 0.7 percent (2.9 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 9.5 percent, and during the last five years, home values increased 69.1 percent.
Middle Atlantic Division (NJ, NY, PA): increased 0.6 percent (2.5 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 8.8 percent, and during the last five years, home values increased 73.2 percent.
East North Central Division (IL, IN, MI, OH, WI): increased 0.5 percent (2.2 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 3.1 percent, and during the last five years, home values increased 27.6 percent.
New England Division (CT, MA, ME, NH, RI, VT): increased 0.1 percent (0.3 percent, annualized) in the third quarter of 2006. Over the last 12 months, home values increased 3.7 percent, and during the last five years, home values increased 59.5 percent.
Jointly developed by Freddie Mac and Fannie Mae and first published by Freddie Mac starting in 1994, the Conventional Mortgage Home Price Index features indexes for the nine Census divisions as well as a national index. The national index is the average of the nine divisional indexes weighted by the distribution of one-unit detached, single-family structures in each Census division.
Unlike other home price indexes based on mean or median values of homes sold during a given period, the Conventional Mortgage Home Price Index is constructed, using regression techniques, from observations of actual sales prices or appraised values of the same homes over time. The street addresses of properties that serve as collateral for mortgages funded by the two secondary mortgage market firms are first processed using software certified by the United States Postal Service to create a uniform address format and are then matched to identify consecutive transactions on the same property. There are currently 32.4 million records in the repeat-transactions database used to construct the Conventional Mortgage Home Price Index – this database includes transactions on one-unit detached and single-family townhome properties serving as collateral on loans originated through the third quarter of 2006 and purchased by Freddie Mac and Fannie Mae by October 31, 2006.
Freddie Mac publishes the Conventional Mortgage Home Price Index each quarter. Index values and growth rates for the nation as a whole as well as for the nine Census divisions, the 50 states and the District of Columbia, and 390 metropolitan statistical areas (MSAs) and metropolitan divisions can be found on Freddie Mac’s web site, www.freddiemac.com/finance/cmhpi/.
Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than four million renters in America. (For more information about Freddie Mac, visit http://www.freddiemac.com.)
