Average U.S. home prices climbed 12.5 percent in the last year, but a slower rate of appreciation shows signs the market is softening, according to a government report released today.

Appreciation for the first quarter was 2.03 percent, or an annualized rate of 8.12 percent, the lowest rate since the first quarter 2004 and about one percentage point below the rate from the previous quarter.

“These data show average housing prices still growing stronger than some might have expected,” OFHEO Acting Director James Lockhart said in a statement. “They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most.”

OFHEO, which stands for the Office of Federal Housing Enterprise Oversight, released the home-price report today.

While house prices climbed in many areas in the first quarter, some regions saw prices decline, according to the report.

For the first time since the fourth quarter of 2002, negative quarterly appreciation rates were observed for some states. Iowa and South Dakota both experienced small price declines between the fourth quarter of 2005 and the first quarter of 2006, OFHEO said.

Appreciation rates over the past year remain lowest in the East North Central Census Division, which includes Wisconsin, Illinois, Indiana, Ohio, and Michigan. Both the four-quarter and the quarter-over-quarter appreciation rates declined by more than half a percent in that division.

Arizona continues to exhibit the greatest appreciation rate, although price growth has dropped significantly in that state. Quarterly appreciation in Arizona dipped from approximately 7.4 percent to 3.8 percent, while its four-quarter appreciation dropped from over 35.5 percent to 32.8 percent. Quarterly appreciation rates were off significantly in the Tucson and Phoenix-Mesa-Scottsdale metropolitan statistical areas.

Rapid increases continue to be widespread in Florida, the report said. Out of the 20 metro areas with the largest percentage house price gains in the past year, 10 were in Florida.

Also, prices continue to rise in some areas affected by Hurricane Katrina, and appreciation rates were particularly robust in New Orleans-Metairie- Kenner, La., and Hattiesburg, Miss.

The Pacific Census Division has regained its position as the fastest appreciating division, overtaking the Mountain Division, the report said.

“Increasing sales inventories are apparently giving buyers greater bargaining power, while increasing interest rates are dampening demand,” said OFHEO Chief Economist Patrick Lawler.

OFHEO’s house-price index is based on analysis of data obtained from Fannie Mae and Freddie Mac from more than 31 million repeat transactions over the pat 31 years. OFHEO is the federal regulator of government housing enterprises Fannie Mae and Freddie Mac.

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