Saturday, September 04, 2004

Hottest Housing Market in 25 Years!

A stronger and expanding economy, sustained low mortgage rates are credited for 9.4% year-over-year increase, the greatest since 1979 driving prices for U.S. homes up at the fastest pace in 25 years during the second quarter.

House prices rose 9.36% over the last 12 months, said the Office of Federal Housing Enterprise Oversight (OFHEO). "The appreciation over the past year is the largest four-quarter increase since 1979," said Patrick Lawler, chief economist at OFHEO. "These data show no signs of the long-anticipated, and ultimately inevitable, slowing of house-price inflation."

To make a comparison, the prices of non-housing goods and services have increased at a rate of only 3.03% in the last year. Price growth likely will slacken when interest rates rise, Lawler said.

"House prices may become increasingly vulnerable to potential sustained higher interest rates in the future, but that has not happened so far," Lawler said in a statement. In fact, mortgage rates have dropped since the Federal Reserve began raising its key overnight lending rate in June. Find Out How Much Home You Can Buy BEFORE You Go Shopping

Still, economists at Fannie Mae, the largest U.S. mortgage financier, say the average rate for a 30-year fixed mortgage probably will rise half a percentage point to 6.5% next year, reverting to 2002 levels. During the first quarter of 2004, though, the rate hit a nine-month low of 5.4% in mid-March, spurring sales that closed in the second quarter.

The appreciation rate for the second quarter was 2.21%, the OFHEO said, an annualized rate of 8.83%.

Nineteen regions had above-average annual price growth in the second quarter-- top gainer Nevada, at 23%, followed by Hawaii, at 19%, California, with 18.4%, Rhode Island, at 17.9% and Washington D.C. with 16%. Prices in New York gained 11%, and Massachusetts rose 9.8%.

The states lagging year-over-year price growth were Utah, at 2.6%, followed by Texas, with a gain of 2.9% and Indiana trailing at 3.1%. Those states also lagged in the first quarter, but none experienced falling prices in the second quarter.

Regionally, appreciation has bogged down in the New England and West South Central (Arkansas, Louisiana, Texas and Oklahoma) areas. New England braked to a 10.65% rate, while West South Central prices rose only 3.83% -- the smallest increase of all census divisions.

The study, known as the House Price Index, exempts properties with mortgages higher than $333,700, the maximum amount allowed in 2004 for loans bought by government-chartered Fannie Mae and Freddie Mac, and it follows average house price changes in repeat sales or refinancing of single-family properties in the portfolios. House Price Index