House Prices

Yesterday the Office of Federal Housing Enterprise Oversight (OFHEO) released its quarterly estimate of house price appreciation. The estimate shows that housing price appreciation slowed sharply in the fourth quarter of 2004 compared to the third quarter. Because prices rose so much earlier in 2004, the year-on-year (y-o-y) percent change in house prices was still high at the end of 2004… but it seems that the increase in house prices took a pause during the past three months of last year. The following chart illustrates, showing recent house price changes in a few selected cities.

(Note: Data is not seasonally adjusted. The OFHEO’s house price index is based on a massive dataset including all single-family house sales that Freddie Mac of Fannie Mae are involved in. See here for details.)

Whether this is just a temporary pause to the remarkable price increases of the past few years (such as we saw in the first quarter of 2004), or the beginning of the end of the inflation in housing prices remains to be seen; there’s simply not enough evidence to support either conclusion. However, it is interesting to note that the deceleration in house price increases was extremely broad-based, shared by a wide variety of markets. This suggests that the reasons for the slowdown in price appreciation in these housing markets are national in origin rather than local.

If you’d like a bit of historical context, I’ve also put together the following chart that shows y-o-y house price changes in a few markets since 1980.

Yes, house prices can indeed go down as well as up.

Kash