Home Price Growth Slips to Six-Year Low

Home prices rose 6.1% last year, the lowest rate of annual price appreciation since 1999, according to Freddie Mac's conventional home price index.

That was less than half the national home value appreciation rate posted in 2005. And Freddie Mac expects to see the appreciation rate fall by half again this year. The Freddie Mac numbers are generally consistent with the home price tracking of the Office of Federal Housing Enterprise Oversight, which estimated 2006 appreciation of 5.87%.

Both indices showed the rate of appreciation slowing down toward the end of 2006, with the lowest price gains being posted in the fourth quarter.

The index shows a disparity in appreciation rates by state. Prices actually fell in Michigan last year, according to Freddie Mac. Among metropolitan areas, both Boston and Detroit saw home prices fall.

And seven other states (California, Hawaii, Nebraska, Nevada, North Dakota, Rhode Island and West Virginia) saw values drop in the fourth quarter, though prices remained up on a year-over-year basis.

Moreover, the data suggest that demand was slackening late in the year. In the fourth quarter of 2006, the annualized price appreciation rate was just 4.4%, and the volume of home sales fell 11%, according to Freddie Mac. By contrast, values were still rising at an annualized rate of 8% in the third quarter of last year.

Frank Nothaft, Freddie Mac's chief economist, said in a news release that the slowdown in home sales has been especially apparent in high-cost markets that have seen fast price appreciation in recent years.

Freddie Mac's index shows that this drop in sales has also led to a substantial slowdown in home value appreciation, and a drop in values in some markets where the economy is weak or housing costs have gotten very high, he said.

Mr. Nothaft said Freddie Mac's index tends to lag other indicators of home prices, because some of the data are based on appraisals associated with home sales transactions that happened several months earlier.

"Because other indicators continue to show value weakness in some markets, it is likely that appreciation measured by the CMHPI will moderate further this year," Mr. Nothaft said.

Freddie Mac expects the annual appreciation rate to be near 3% this year, or about half of the 2006 rate.

Mr. Nothaft said that "affordability is the crux to recovery in many down markets." Fortunately for home sellers in those markets, mortgage rates today are about 50 basis points lower than last July, which is helping shoppers stretch their homebuying reach.

Snapshot: House Price Appreciation

2007 3.0% (e)

2006 6.1%

2005 13.3%

Source: Freddie Mac. 2007 is an estimate. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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