Second Quarter Home Values Continue To Show Strength According To Freddie Mac Quarterly Report

September 5, 2002

Record Low Mortgage Rates Add to the Vibrancy of the Housing Sector

McLean, VA ? Freddie Mac announced today that its quarterlyConventional Mortgage Home Price Index (CMHPI) found growth in home values increased by an annualized rate of 7.6 percent nationwide in the second quarter of 2002.  This rate is down slightly from a revised annualized rate of 7.9 percent for the first quarter of 2002.  The index also showed that the annual house-price appreciation rate was a robust 6.3 percent from the second quarter of 2001 through the second quarter of 2002.  Home price appreciation rates have slowed significantly from the peak growth rates experienced in early 2001 as anticipated by Freddie Mac economists.  The second quarter of 2002 marked the 5th straight decline in annual growth rates measured in the CMHPI.

Home values in the Middle Atlantic States showed the largest gains in value, growing at a vigorous annualized rate of 13.8 percent during the second quarter.  The New England states came in second with an almost equally impressive growth rate of 12.7 percent.  The Pacific states followed, posting a very robust annualized gain of 9.7 percent.  The South Atlantic states showed a strong growth rate of 8.6 percent while the West North Central states registered a growth rate of 7.3 percent.  The East North Central states came in at a slower, but still healthy, rate of 5.5 percent.

Experiencing positive but somewhat smaller increases in home values, the West South Central states showed a more modest annualized increase in rate of growth of 4.0 percent during the period, followed by the Mountain states, which recorded a growth rate in home values of 3.8 percent.  The East South Central States had the slowest rate of appreciation, posting a growth rate of 1.8 percent during the second quarter of 2002.

?We expect home price growth to slow still further this year, but given current economic conditions we have revised our forecast for 2002 house price appreciation upward from 4 percent to 5 percent to about 6 percent to 6.5 percent,? said Frank Nothaft, Freddie Mac chief economist.  ?That rate of appreciation, coupled with low mortgage rates, will ensure that housing will continue to provide support for the current economy throughout the rest of the year.

?Thanks in large part to historically low mortgage rates, a refinancing boom is well underway.  In recent weeks refis have risen to around 65 percent of mortgage applications and Freddie Mac's quarterly refinance report shows that 67 percent of refinances in the first half of 2002 resulted in a new loan that was at least 5 percent higher than the original loan.  This could put a potential $100 billion back into the economy in 2002.?

Freddie Mac is projecting a 51 percent refi share for 2002, falling to approximately 30 percent for 2003.

Freddie Mac economists currently expect single-family mortgage originations to increase with the affordable mortgage rates currently available and have revised the forecast for originations upward to $1.9 trillion for 2002.

The Conventional Mortgage Home Price Index shows the following regional performances:

  • Middle Atlantic Division (NJ, NY, PA):   increased 3.3 percent (13.8 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 10.0 percent, and during the last five years, home values increased 45.4 percent.
  • New England Division (CT, MA, ME, NH, RI, VT):  increased 3.0 percent (12.7 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 10.6 percent, and during the last five years, home values increased 62.3 percent
  • Pacific Division (AK, CA, HI, OR, WA):  increased 2.3 percent (9.7 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 6.6 percent, and during the last five years, home values have increased 52.3 percent.
  • South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV):  increased 2.1 percent (8.6 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 7.0 percent, and during the last five years, home values increased 38.0 percent.
  • West North Central Division (IA, KS, MN, MO, ND, NE, SD):  increased 1.8 percent (7.3 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 6.8 percent, and during the last five years, home values increased 40.7 percent.
  • East North Central Division (IL, IN, MI, OH, WI):  increased 1.3 percent (5.5 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 5.2 percent, and during the last five years, home values increased 32.1 percent.
  • West South Central Division (AR, LA, OK, TX): increased 1.0 percent (4.0 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 3.3 percent, and during the last five years, home values increased 29.9 percent.
  • Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY):   increased 0.9 percent (3.8 percent, annualized) in the second quarter of 2002.  In the last 12 months, home values increased 4.1 percent, and during the last five years, home values increased 32.4 percent.
  • East South Central Division (AL, KY, MS, TN):  increased 0.4 percent (1.8 percent, annualized) in the second quarter of 2002.  Over the last 12 months, home values increased 3.2 percent, and during the last five years, home values increased 25.9 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 17 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?s web site,www.freddiemac.com/finance/cmhpi/.

Source: Freddie Mac


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