Slowdown In Home Price Growth Continues Into Fourth Quarter
March 5, 2003
Third Quarter Growth Rate Adjusted Upward
McLean, VA - Freddie Mac announced today that its quarterly Conventional Mortgage Home Price Index (CMHPI) found growth in home values increased by an annualized rate of 3.9 percent nationwide in the final quarter of 2002. This rate is down from a revised annualized rate of 5.3 percent for the third quarter of 2002. There was, as had been expected, significant upward revision for the third quarter values indicating that the housing market in that quarter was stronger than originally estimated. These revisions were consistent with the significant decline in interest rates in the third quarter, and also reflect delays between origination and funding by Freddie Mac or Fannie Mae.
"In both the current quarter and revised third quarter values from the Conventional Mortgage Home Price Index, all regions are showing rising home prices that are adding to homeowner equity across the nation," said Frank Nothaft, Freddie Mac chief economist.
The index also showed that the annual house-price appreciation rate was 6.6 percent from the fourth quarter of 2001 through the fourth quarter of 2002. National annual growth rates in home values peaked at 8.4 percent between the second quarter of 2000 and the second quarter of 2001 and have been decelerating for six consecutive quarters. The annual growth rate is trending toward the 50-year U.S. average annual growth rate of 4.8 percent.
The New England States led in growth of house prices, rising at a vigorous annualized rate of 7.3 percent during the fourth quarter. The Pacific States followed with a lively growth rate of 6.1 percent. The Middle Atlantic States showed the third strongest gains by matching the long-term average home-price growth rate for the nation at 4.8 percent. The South Atlantic States posted gains of 4.1 percent, followed by the West North Central States with increases of 3.2 percent.
The West South Central States showed a rise in home values of 3.1 percent, a rate of increase nearly matched by the East South Central States, which saw a rise of 3.0 percent. And while the East North Central States saw a moderate increase of 2.3 percent in home values - a gain well above the overall rate of inflation in the fourth quarter - homeowners in the Mountain region experienced values rise 1.6 percent, keeping pace with the rate of overall inflation.
"Although the rate of growth in house prices is slowing, the annualized growth rate still remains at or above inflation in all nine census regions," commented Nothaft. "Housing continues to be a reliable, consistent investment as we go into 2003.
"We expect the refi boom will begin to taper off sometime in the second half of 2003, but at the present time, record-breaking low mortgage rates continue to keep the refinance industry robust. As a matter of fact, Freddie Mac's weekly mortgage rate survey for 30-year fixed rate mortgages set a new 37-year low last week and currently more than 75 percent of new mortgage applications are for refinance."
The refi share of mortgage originations in 2002 was 58 percent. In 2003, Freddie Mac expects this share to decline slightly to approximately 54 percent of originations and for home purchases to set a new record.
Freddie Mac economists expect single-family mortgage originations to be quite strong in 2003 with the low mortgage rates currently available; total single-family originations should top $1.9 trillion.
Starting with the fourth quarter 2002 release, Freddie Mac will be extending the national series back to 1970. During this transition quarter, both the 1975-2002 national series and the 1970-2002 national series are being made available for comparison purposes.
"We are excited about increasing the amount of information available in the CMHPI for researchers and others interested in U.S. housing markets. By extending the data period back five years we can observe the impacts of one more economic cycle on home prices, which is critical given that we have been fortunate enough to have only five recessions since 1970," Frank Nothaft added.
The Conventional Mortgage Home Price Index shows the following regional performances:
New England Division (CT, MA, ME, NH, RI, VT): increased 1.8 percent (7.3 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 10.7 percent, and during the last five years, home values increased 64.6 percent
Pacific Division (AK, CA, HI, OR, WA): increased 1.5 percent (6.1 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 9.9 percent, and during the last five years, home values have increased 53.6 percent.
Middle Atlantic Division (NJ, NY, PA): increased 1.2 percent (4.8 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 10.2 percent, and during the last five years, home values increased 46.7 percent.
South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 1.0 percent (4.1 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 7.0 percent, and during the last five years, home values increased 37.4 percent
West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 0.8 percent (3.2 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 5.7 percent, and during the last five years, home values increased 38.2 percent.
West South Central Division (AR, LA, OK, TX): increased 0.8 percent (3.1 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 3.7 percent, and during the last five years, home values increased 28.5 percent.
East South Central Division (AL, KY, MS, TN): increased 0.7 percent (3.0 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 3.5 percent, and during the last five years, home values increased 24.2 percent.
East North Central Division (IL, IN, MI, OH, WI): increased 0.6 percent (2.3 percent, annualized) in the fourth quarter of 2002. Over the last 12 months, home values increased 4.2 percent, and during the last five years, home values increased 29.3 percent.
Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 0.4 percent (1.6 percent, annualized) in the fourth quarter of 2002. In the last 12 months, home values increased 4.0 percent, and during the last five years, home values increased 29.9 percent
Jointly developed by Freddie Mac and Fannie Mae, 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 detached, one-unit, 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 more than 19 million records in the repeat-transactions database used to construct the nine division indexes.
Freddie Mac releases 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 163 metropolitan statistical areas (MSAs) can be found on Freddie Mac web site, www.freddiemac.com/finance/cmhpi/. (The extended national series data will soon be made available online as well.)
Source: Freddie Mac
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