For the sixth quarter in a row, the Pacific states – which includes Alaska, California, Hawaii, Oregon and Washington – lead the nation in annual house-price appreciation, growing at 20.9 percent, according to Freddie Mac’s Conventional Mortgage Home Price Index.

During the third quarter, Pacific Division prices increased 6 percent (26.5 percent, annualized). During the last five years, home values have increased 76.8 percent.

“The cumulative effect of two years in which 30-year fixed mortgage rates averaged just 5.8 percent and an improving employment picture this year have buoyed the housing market to new highs,” said Frank Nothaft, Freddie Mac’s chief economist. “The Conventional Mortgage Home Price Index for the third quarter is showing strong growth primarily along the coasts – areas where populations are growing rapidly and there is little available land on which to build new homes. We are expecting national home price growth to slow next year as a result of higher interest rates; however, there is no reason to expect a decline in house prices in any area as long as job growth continues.”

The Middle Atlantic states captured second place, with an annual growth rate of 16.5 percent. Middle Atlantic Division prices increased 5.5 percent (23.8 percent, annualized) in the third quarter of 2004. During the last five years, home values increased 65.8 percent.

The New England states grew at a slightly lower rate of 16.2 percent for the year. New England Division prices increased 6 percent (26.4 percent, annualized) in the third quarter of 2004. During the last five years, home values increased 75.7 percent.

The South Atlantic states were fourth in growth with an annual appreciation rate of 14 percent. South Atlantic Division prices increased 3.9 percent (16.7 percent, annualized) in the third quarter of 2004. During the last five years, home values increased 50.6 percent.

The Mountain states came in next with an annual home-price growth rate of 10.9 percent. Mountain Division prices increased 3.6 percent (15.3 percent, annualized) in the third quarter of 2004. During the last five years, home values increased 36 percent.

After the Mountain states, the West North Central states posted an increase of 8.8 percent, followed by the East North Central states with an increase of 7.6 percent. Finally, the East South Central states showed gains of 5.8 percent while the West South Central states ended the list with a 4.5 percent annual rate of growth.

Nationally, Freddie Mac’s price index rose 12.4 percent, on an annual basis, from the third quarter of 2003 through the third quarter of 2004, up from the prior year (third quarter of 2002 to third quarter of 2003) when the growth rate was 5.7 percent.

Nationwide home values increased by an annualized rate of almost 16 percent in the third quarter of 2004. The second quarter 2004 annualized growth rate was revised upward to 9.9 percent.

“The house price gains lead to the natural question of whether these gains are sustainable,” said Amy Crews Cutts, Freddie Mac’s deputy chief economist. “Thus far, the annual growth rates are largely consistent with the market fundamentals of low interest rates, a lack of buildable land that restricts the amount of new supply hitting the market, and jobs growth. I am hesitant to use the word bubble because the fundamentals are still strong, but it is hard to believe that these very large increases will continue. However, absent significant job losses in a region – like we saw in California in the early 1990s when Los Angeles and San Diego together saw more than 575,000 jobs disappear over a period of three and a half years – house prices should not see significant declines.”


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