Home prices were 10 percent higher in the second quarter compared to second-quarter 2005, though the quarterly appreciation rate hit its largest decline in the 30-year history of a national house-price index when compared to second-quarter 2005.
The second-quarter appreciation rate was 1.17 percent, compared with 3.65 percent in second-quarter 2005, according to the latest Office of Federal Housing Enterprise Oversight House Price Index. And the annualized quarterly appreciation rate dropped from 14.62 percent in second-quarter 2005 to 4.68 percent in second-quarter 2006.
“The decline in the quarterly rate over the past year is the sharpest since the beginning of OFHEO’s House Price Index in 1975,” OFHEO announced.
“These data are a strong indication that the housing market is cooling in a very significant way,” said James B. Lockhart, OFHEO director, in a statement. “Indeed, the deceleration appears in almost every region of the country.”
Higher interest rates, a drop in speculative activity, and rising inventories of homes are possible contributors to the decline in the quarterly appreciation rate, according to the announcement.
“The very high appreciation rates we’ve seen in recent years spurred increased construction,” OFHEO chief economist Patrick Lawler said in a statement. “That coupled with slower sales has led to higher inventories, and these inventories will continue to constrain future appreciation rates.”
House prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. While house prices rose 10.06 percent, prices of other goods and services rose 4.41 percent. The pace of house-price appreciation in the most recent quarter more closely resembles the non-housing inflation rate, OFHEO reported.
Among the index findings:
- All states show four-quarter appreciation, but five Midwestern and New England states had small price decreases in the second quarter.
- Price appreciation remained relatively robust in the two states hardest hit by Hurricane Katrina — Louisiana and Mississippi. Four-quarter appreciation rates were well above the national average in several metro areas in those states, including New Orleans-Metairie-Kenner, Gulfport-Biloxi, Baton Rouge, and Pascagoula. Gulfport-Biloxi and Pascagoula experienced their highest appreciation rates in the history of the House Price Index.
- The South Atlantic Census Division including Florida, Delaware, Washington, D.C., Virginia and Maryland experienced the highest level of price deceleration since at least the early 1980s, as its four-quarter appreciation rate fell from 17.43 percent to 13.74 percent.
- New England’s four-quarter appreciation rate fell from 8.71 percent to 5.68 percent. While appreciation rates in Massachusetts were consistently amid the 10 highest between mid-1997 and mid-2003, its four-quarter appreciation rate now ranks 48th among the states and Washington, D.C.
- Despite a 9 percentage-point decline in its four-quarter appreciation rate, Arizona’s housing market still exhibits the highest appreciation rate among the 50 states. Prices were up roughly 24 percent compared to second-quarter 2005 but grew about 2.94 percent in the most recent quarter.
- While the 20 metro areas with the highest appreciation included nine cities in Florida, the representation of other states continues to increase. MSAs in North Carolina, South Carolina and Washington state have joined the list of fastest-appreciating markets.
- Michigan had the greatest numbers of price decreases among ranked metro areas — 13 of Michigan’s 16 ranked metropolitan areas exhibited quarterly price decreases.
- Four-quarter appreciation rates fell sharply in four of the five states that had fastest appreciation in the first-quarter index report.
Changes in the mix of data from refinancings and house-purchase transactions can affect HPI results. An index using only purchase-price data indicates somewhat less price appreciation for U.S. houses between the second quarter of 2005 and the second quarter of 2006. That index increased 8.27 percent compared with 10.06 percent for the HPI.
The House Price Index is published on a quarterly basis and tracks average house-price changes in repeat sales or refinancings of the same single-family properties. OFHEO’s index is based on analysis of data obtained from Fannie Mae and Freddie Mac from about 31 million repeat transactions over the past 31 years. OFHEO analyzes the combined mortgage records of Fannie Mae and Freddie Mac, which form a database of conventional, conforming mortgage transactions. The conforming loan limit for mortgages purchased in 2006 is $417,000.