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House Price Appreciation Slows in Second Quarter
U.S. home prices continued to rise in this year’s second quarter, but at a rate that is more in line with non-housing goods and services reported in the Consumer Price Index, a strong indication that the industry is in the midst of a significant cooldown, according to the OFHEO House Price Index (HPI).
Released on Sept. 5, the report pegged housing appreciation for the second quarter at 1.17%, or an annualized rate of 4.68%, the lowest quarterly rate of appreciation since the fourth quarter of 1999. Home prices were 10.06% higher for the period than they were for the same quarter of 2005, but OFHEO noted the decline in the quarterly rate over the last year is the sharpest since the index was started in 1975.
“These data are a strong indication that the housing market is cooling in a very significant way,” said James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
Lockhart cited higher interest rates, a drop in speculative home buying activity and rising inventories of homes as factors behind the slowdown in home price appreciation.
The new HPI data showed that appreciation rates for the period running from the second half of 2005 through the first half of this year fell sharply in four of the five states that had the fastest appreciation. Of the seven states (including the District of Columbia) that saw more than 80% appreciation over the 2001-2004 period, only Rhode Island’s appreciation rate increased over the last year. Among the previous boom markets, the rate of price appreciation was down in Washington, D.C., California, Nevada, Maryland, Florida and Hawaii.
All 50 states and the District of Columbia registered housing price appreciation for the year running through the second quarter, but in the second quarter small price decreases, ranging from 0.20% to 0.72%, occurred in Maine, Massachusetts, Indiana, Ohio and Michigan.
Despite a nine percentage point decline in its appreciation rate for the four quarters, Arizona’s housing market showed the highest rate of appreciation in the country. Prices were up roughly 24% compared to the second quarter of 2005, but grew only 2.94% in the second quarter.
Other findings from the report:
- Price appreciation remained relatively robust in Louisiana and Mississippi — the two states hit the hardest by Hurricane Katrina. Four-quarter appreciation rates were well above the national average in several cities in the area, including New Orleans-Metairie-Kenner, Gulfport-Biloxi, Baton Rouge and Pascagoula.
- The South Atlantic Census Division — including Florida, Delaware, the District of Columbia, Virginia and Maryland — experienced its most significant price deceleration since at least the early 1980s. Its four-quarter appreciation rate fell from 17.43% to 13.74%.
- New England’s four-quarter appreciation rate fell from 8.71% to 5.68%. While appreciation rates in Massachusetts were consistently among the 10 highest between mid-1997 and mid-2003, its four-quarter appreciation rate now ranks 48th among the states and Washington, D.C.
- While the 10 Metropolitan Statistical Areas with the highest appreciation included nine cities in Florida, the representation of other states continued to increase, with markets in North Carolina, South Carolina and Washington entering the list of the fastest appreciating.
- Thirteen of Michigan’s 16 ranked metropolitan areas showed quarterly price decreases, the worst showing for top metro areas of any state.
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