Industry News

Strong House Price Growth Reflects Vibrant Housing Market Fourth Quarter Appreciation at Nine Percent Annualized Rate

March 3, 2005

McLean, VA – Freddie Mac's (NYSE: FRE) quarterly Conventional Mortgage Home Price Index (CMHPI) rose 10.7 percent, on an annual basis, from the fourth quarter of 2003 through the fourth quarter of 2004, up from an 8.4 percent growth rate for the prior year (fourth quarter of 2002 to fourth quarter of 2003).

"House price growth strengthened last year in light of low mortgage rates and an expanding economy. During 2003 and 2004, homeowners enjoyed two years in which 30-year fixed mortgage rates averaged just 5.8 percent – the lowest in more than 40 years," said Frank Nothaft, Freddie Mac vice president and chief economist. "Economic growth hit 3.9% in 2004 and payroll employment increased by 2.2 million jobs. An improved labor market and gains in family income contributed to a record level of home sales and single-family construction, as well as an exceptional pace of home-value appreciation."

The Conventional Mortgage Home Price Index (CMHPI) for the fourth quarter shows strong growth primarily along the coasts – areas where populations are growing rapidly and there is little available land on which to build new homes.

"We are expecting national home price growth to slow in 2005 as a result of higher interest rates; however, there is no reason to expect a decline in house prices as long as job growth continues," added Nothaft.

Nationally, home values increased by an annualized rate of almost nine percent in the fourth quarter of 2004. The annualized growth rate in the third quarter of 2004 was revised upward to 17.5 percent.

"Home construction and sales were exceptional last year," said Nothaft. "Sales of new and existing houses and pre-owned condominiums all set records in 2004, with total sales of 8.0 million. We expect that mortgage rates will gradually rise throughout this year, with 30-year fixed mortgage rates averaging near 6.25 percent at year-end, and home sales likely declining about three percent from last year’s volume.

"We are forecasting annual home price appreciation nationally at between seven and eight percent in 2005. Strong home sales and higher values should propel purchase-money mortgage originations to another record this year – at around $1.51 trillion, up from 2004’s estimated $1.48 trillion – but total originations will likely decline due to smaller refinance volumes caused by the predicted rise in interest rates."

For the seventh consecutive quarter, the Pacific states lead the nation in annual house-price appreciation, growing at 17.7 percent. The South Atlantic states were second, with a growth rate of 14.1 percent, followed by the Middle Atlantic states, which grew at a slower, but still impressive rate of 13.5 percent for the year. The New England states were fourth in growth with an annual appreciation rate of 12.6 percent.

The Mountain states came in after that with an annual home-price growth rate of 9.8 percent. Following the Mountain states, the West North Central states posted an increase of 6.2 percent, while the East North Central states showed an increase of 5.8 percent. Finally, the East South Central states had gains of 5.6 percent and the West South Central states had the slowest annual appreciation – a 4.3 percent annual rate.

"The fourth quarter of 2004 is the 38th consecutive quarter in which all nine regions of the United States had positive annual home price growth," noted Yan Chang, a Freddie Mac economist. "While the appreciation has been broadly experienced across all areas, the magnitude of the growth is not enjoyed equally among regions. Those areas with weaker local economic activity generally show the slowest appreciation rates. For example, the weakness in manufacturing employment has led to job loss and slower house price increases in many markets in the East North Central states."

Measured by December-to-December payroll job changes, 2004 marks the fourth straight year Michigan has lost payroll jobs overall, and the fifth year for Ohio. It is also the seventh straight year both Illinois and Ohio have seen manufacturing job losses.

In contrast, one state that did particularly well in 2004 was Hawaii, whose tourism-based industry had been battered by a string of events from the Asian flu in the late nineties to the SARS scare in early 2003.

"With an improving Asian economy and the help of a depreciating dollar, tourism rebounded in 2004: more than 6.9 million visitors came to visit the islands by air, making it the second best year ever, and they spent a record-breaking $10.3 billion," noted Chang. "As a result, the leisure and hospitality industries, together with trade, transportation and utilities, contributed to more than 50 percent of the state’s year-over-year gain of 18,400 jobs."

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

• Pacific Division (AK, CA, HI, OR, WA): increased 3.4 percent (14.4 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 17.7 percent, and during the last five years, home values have increased 80.3 percent.
• South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 3.4 percent (14.4 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 14.1 percent, and during the last five years, home values increased 55.3 percent
• Middle Atlantic Division (NJ, NY, PA): increased 2.1 percent (8.8 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 13.5 percent, and during the last five years, home values increased 68.5 percent.
• New England Division (CT, MA, ME, NH, RI, VT): increased 1.6 percent (6.6 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 12.6 percent, and during the last five years, home values increased 75.9 percent.
• Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 1.7 percent (7.1 percent, annualized) in the fourth quarter of 2004. In the last 12 months, home values increased 9.8 percent, and during the last five years, home values increased 37.3 percent.
• West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 0.9 percent (3.7 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 6.2 percent, and during the last five years, home values increased 39.8 percent.
• East North Central Division (IL, IN, MI, OH, WI): increased 1.0 percent (4.0 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 5.8 percent, and during the last five years, home values increased 31.1 percent.
• East South Central Division (AL, KY, MS, TN): increased 1.6 percent (6.5 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 5.6 percent, and during the last five years, home values increased 25.6 percent.
• West South Central Division (AR, LA, OK, TX): increased 1.5 percent (6.3 percent, annualized) in the fourth quarter of 2004. Over the last 12 months, home values increased 4.3 percent, and during the last five years, home values increased 26.4 percent.

Sourece: Freddie Mac

Contact ALTA at 202-296-3671 or communications@alta.org.