Home-price growth crawled at the slowest rate in the second quarter since fourth-quarter 1999, Freddie Mac reported this week.
The mortgage giant’s Conventional Mortgage Home Price Index rose 4.9 percent in the second quarter on an annualized basis, down from a revised first quarter rate of 9.1 percent.
Nationally, home values increased 10.2 percent from second-quarter 2005 through second-quarter 2006, down from the 13.9 percent annual growth seen over the four quarters ended in June 2005, according to the report.
The East South Central states had the highest level of home-value appreciation in the U.S., with quarterly appreciation of 8.3 percent at an annualized rate during the second quarter, followed by the West South Central states, which had a gain of 7.8 percent. The Mountain states came next and showed a gain of 6.4 percent, while price growth was 6.2 percent in the Middle Atlantic states.
The Pacific states posted an average appreciation rate of 5.8 percent; the South Atlantic division saw an increase of 5.7 percent; and the West North Central region had a gain of 2.5 percent. The East North Central states had the second-slowest annual appreciation at 1.2 percent, and New England states were last with a growth rate of 0.8 percent, Freddie Mac reported.
Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement that 30-year fixed mortgage rates rose nearly one-half of a percentage point during the second quarter and rates on one-year adjustable-rate mortgages went up a third of a percentage point, according to the Primary Mortgage Market Survey.
“Housing is the most interest-rate-sensitive sector of the economy, and we are seeing the effects now of both rising rates during the quarter as well as increases that came before,” Nothaft stated.
Single-family home sales through the first half of the year averaged 7.03 million units at an annual rate, on track for the third-best year of home sales on record. Single-family housing starts averaged an annualized rate of 1.64 million units through June, just under the record pace set in 2005, Freddie Mac also reported.
“As the full impact of two years of rising short-term interest rates is felt in the economy, the slowdown in the housing market could become more abrupt over the next year,” according to the announcement.
Nothaft said, “As the market moves from one of unsustainably high appreciation where sellers have all the power to a buyer’s market we expect to see homes sit longer on the market, with sellers more willing to make non-price concessions. These concessions can take several different forms, such as repairs, conveyances or contributions towards closing costs to attract buyers. The result is that the house prices we observe tend to be sticky on the downside.”
Amy Crews Cutts, deputy chief economist for Freddie Mac, said in a statement that higher energy prices “have created a new boom in many towns in the East and West South Central states that were devastated in the 1980s when oil prices came crashing down. Midland and Odessa, Texas, both saw annualized growth rates in excess of 35 percent in the second quarter, and if natural gas prices continue to stay high, we can expect this pressure on house prices there to continue.”
Meanwhile, Massachusetts, Maine and New Hampshire all experienced declines in home prices during the second quarter but are still up year-over-year. A fall in demand for second homes may be a factor in this decline, according to the Freddie Mac report. Maine has the highest share of second homes in the country. And economic fundamentals “could not fully support the high rate of appreciation” that the area has experienced over the past few years.
Cutts also said that manufacturing job losses continue to hurt the Great Lakes region, and 11 metro areas in that region saw year-over-year declines in average home values. Nine of those metro areas were in Michigan, Indiana and Ohio, and Detroit had a metro area price decline of 0.7 percent in second-quarter 2006 compared to second-quarter 2005.
The Conventional Mortgage Home Price Index shows the following regional performances:
- East South Central Division (Alabama, Kentucky, Mississippi and Tennessee): increased 2 percent (8.3 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 8.1 percent, and during the last five years, home values increased 29.8 percent.
- West South Central Division (Arkansas, Louisiana, Oklahoma and Texas): increased 1.9 percent (7.8 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 8.1 percent, and during the last five years, home values increased 28.8 percent.
- Mountain Division (Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah and Wyoming): increased 1.6 percent (6.4 percent, annualized) in the second quarter of 2006. In the last 12 months, home values increased 13.8 percent; during the last five years, home values increased 54.7 percent.
- Middle Atlantic Division (New Jersey, New York and Pennsylvania): increased 1.5 percent (6.2 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 11.8 percent, and during the last five years, home values increased 76.3 percent.
- Pacific Division (Alaska, California, Hawaii, Oregon and Washington): increased 1.4 percent (5.8 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 14.1 percent, and during the last five years, home values have increased 95.4 percent.
- South Atlantic Division (Washington, D.C., Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia): increased 1.4 percent (5.7 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 14.1 percent, and during the last five years, home values increased 71.4 percent
- West North Central Division (Iowa, Kansas, Minnesota, Missouri, North Dakota, Nebraska and South Dakota): increased 0.6 percent (2.5 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 4.8 percent; over the last five years, home values increased 36.0 percent.
- East North Central Division (Illinois, Indiana, Michigan, Ohio and Wisconsin): increased 0.3 percent (1.2 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 4.2 percent, and during the last five years, home values increased 28.8 percent.
- New England Division (Connecticut, Massachusetts, Maine, Rhode Island and Vermont): increased 0.2 percent (0.8 percent, annualized) in second-quarter 2006. Over the last 12 months, home values increased 5.9 percent, and during the last five years, home values increased 64.8 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 U.S. Census Bureau divisions and 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.
The Conventional Mortgage Home Price Index is constructed 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, Freddie Mac noted.
There are 31.6 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 town home properties serving as collateral on loans originated through the second quarter and purchased by Freddie Mac and Fannie Mae by July 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 at www.freddiemac.com/finance/cmhpi/.