Annual Home Value Growth At Highest Rate Since 1980
September 3, 2004
All Regions Continue To Show Gains In Second Quarter
McLean, VA – Freddie Mac (NYSE: FRE) announced that its quarterly Conventional Mortgage Home Price Index (CMHPI) rose 10.0 percent, on an annual basis, from the second quarter of 2003 through the second quarter of 2004, up from the prior year (second quarter of 2002 to second quarter of 2003) when the growth rate was 6.5 percent.
"The large annual increase in house prices in the second quarter Conventional Mortgage Home Price Index (CMHPI) was a result of record low interest rates in June of 2003 and near-record lows in mortgage rates in March of this year," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "After three years of declining mortgage rates and big jobs gains earlier in the year, housing demand is as strong as we've ever seen it. The housing market should remain strong for the next several quarters, but may begin to slow from record levels as interest rates start to gradually rise."
The second quarter's quarterly growth rate is a 50 percent increase over the first quarter's rate. Nationally, home values increased by an annualized rate of 9.8 percent in the second quarter of 2004. The first quarter 2004 annualized growth rate was revised upward to 6.5 percent.
"Mortgage rates in March were around 5.4 percent for 30-year, fixed-rate mortgages, pushing total homes sales to a record quarterly pace of 8.08 million units (annualized rate) and this strong housing demand sent house-price appreciation way up," said Cutts. "These low rates compounded the already strong seasonal effect that we get in the spring from home buyers and sellers who are in the market when the flowers are in bloom and the weather is nice."
For the fourth quarter in a row, the Pacific states continued to lead the nation in annual house-price appreciation, growing at a very strong annual rate of 17.1 percent for the year. The Middle Atlantic states were, once again, second in growth with an annual appreciation rate of 12.7 percent. The New England states came in third in gains, with an annual home-price growth rate of 11.7 percent. Following New England, the South Atlantic states posted an increase of 11.4 percent, trailed by the Mountain states with an increase of 8.0 percent.
The West North Central states' home values climbed 7.6 percent, while the East North Central states experienced a growth rate of 6.1 percent in home values. Finally, the East South Central states posted an expansion of 4.6 percent and the West South Central states ended the list for the fourth consecutive quarter with an annual growth rate of 4.3 percent for the second quarter of 2004, both just above the 3.7 percent rate of overall consumer-price inflation.
"The second quarter of 2004 is the 31st quarter in which every region of the country has seen positive changes in home prices," noted Cutts. "Greater dispersion in the industrial mix of jobs across the U.S. has helped to sustain house-price growth in all regions even as the nation lost jobs, particularly in the manufacturing sector. Some local areas, however, have seen stagnant growth or even small home-price declines due to local job losses, but in the 163 metro areas covered by the CMHPI, we have not recorded year-over-year declines in any city except San Jose, CA, since early 2000. However, San Jose has already made a good recovery since its losses in the first half of 2002.
"Faster growing house prices lead to the natural question of whether these gains are sustainable. Thus far, the annual growth rates are consistent with the market fundamentals of declining interest rates, a lack of buildable land that restricts the amount of new supply hitting the market, and despite job losses, the strength of consumer spending. That said, anyone thinking about investing in a house should probably consider whether it would still be a good investment if the value only increased at one-third or one-half of the rates we've seen recently. I don't think home values will come down, but their rate of growth will likely slow back closer to average levels over the next year or so."
The recent declines in interest rates have increased refinance activity again, currently to near 40 percent of new mortgage applications. "We expect the refinance share to gradually decline from current levels to closer to 30 percent in the fourth quarter, and average near 43 percent for the year," said Cutts. "Because of lower refinance volume relative to 2003, single-family mortgage originations will drop by about one-third, from $3.7 trillion in 2003 to about $2.5 trillion in 2004. Purchases of single-family houses hit a record 7.2 million sales in 2003, and we expect a new record of 7.5 million new and existing sales to be reached in 2004."
The Conventional Mortgage Home Price Index shows the following regional performances:
- Pacific Division (AK, CA, HI, OR, WA): increased 3.9 percent (16.6 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 17.1 percent, and during the last five years, home values have increased 74.2 percent.
- Middle Atlantic Division (NJ, NY, PA): increased 2.6 percent (11.0 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 12.7 percent, and during the last five years, home values increased 60.6 percent.
- New England Division (CT, MA, ME, NH, RI, VT): increased 2.4 percent (10.1 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 11.7 percent, and during the last five years, home values increased 71.8 percent.
- South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 2.8 percent (11.5 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 11.4 percent, and during the last five years, home values increased 47.1 percent
- Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 2.5 percent (10.5 percent, annualized) in the second quarter of 2004. In the last 12 months, home values increased 8.0 percent, and during the last five years, home values increased 33.0 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 2004. Over the last 12 months, home values increased 7.6 percent, and during the last five years, home values increased 38.7 percent.
- East North Central Division (IL, IN, MI, OH, WI): increased 1.5 percent (6.0 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 6.1 percent, and during the last five years, home values increased 29.7 percent.
- East South Central Division (AL, KY, MS, TN): increased 1.0 percent (4.0 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 4.6 percent, and during the last five years, home values increased 22.8 percent.
- West South Central Division (AR, LA, OK, TX): increased 1.1 percent (4.7 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 4.3 percent, and during the last five years, home values increased 26.5 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 Census divisions as well as 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.
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 28.2 million records in the repeat-transactions database used to construct the nine division indexes – this database includes transactions on one-unit detached and single-family townhome properties serving as collateral on loans originated through the second quarter of 2004 and purchased by Freddie Mac and Fannie Mae by July 31, 2004.
| All Entries Are Percent Changes | New England | Middle Atlantic | South Atlantic | East South Central | West South Central | West North Central | East North Central | Moun- tain |
Pacific | The United States |
| Quarterly Change Q1 2004-Q2 2004 |
2.4 | 2.6 | 2.8 | 1.0 | 1.1 | 1.8 | 1.5 | 2.5 | 3.9 | 2.4 |
| Annualized Quarterly Change Q1 2004-Q2 2004 |
10.1 | 11.0 | 11.5 | 4.0 | 4.7 | 7.3 | 6.0 | 10.5 | 16.6 | 9.8 |
| Annual Change Q2 2003-Q2 2004 |
11.7 | 12.7 | 11.4 | 4.6 | 4.3 | 7.6 | 6.1 | 8.0 | 17.1 | 10.0 |
| 5-Year Change Q2 1999-Q2 2004 |
71.8 | 60.6 | 47.1 | 22.8 | 26.5 | 38.7 | 29.7 | 33.0 | 74.2 | 44.8 |
| Annualized 5-Year Change Q2 1999-Q2 2004 |
11.4 | 9.9 | 8.0 | 4.2 | 4.8 | 6.8 | 5.3 | 5.9 | 11.7 | 7.7 |
Source: Freddie Mac
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