House Prices

The Office of Federal Housing Enterprise Oversight (OFHEO) released its quarterly report on house prices in the US. The national view is summed up thusly:

U.S. home prices were 12.54 percent higher in the first quarter of 2006 than they were one year earlier. Appreciation for the most recent quarter was 2.03 percent, or an annualized rate of 8.12 percent. The quarterly rate is about one percentage point below the rate from the previous quarter and is the lowest rate since the first quarter of 2004. The figures were released today by OFHEO Acting Director James Lockhart, as part of the House Price Index (HPI), a quarterly report analyzing housing price appreciation trends.

“These data show average housing prices still growing stronger than some might have expected,” said Lockhart. “They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most.”

House prices continued to grow considerably faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 12.5 percent, while prices of other goods and services rose only 4.2 percent.

Different housing markets in the US are behaving very, very differently, however, so discussion about the national average hides a lot of interesting detail. In some places house prices started showing signs of unusual increases as far back as 2002, other places didn’t begin their upward sprint until 2005, and many parts of the US have completely missed out on the Great Appreciation of the 2000s.

The data tends to show that in those cities which saw the most rapid increases in house prices during the period 2003-05 (generally in the Northeast and California), house prices are starting to stabilize. The following graph shows the annualized rate of growth in house prices from September 2005 through March 2006, as measured by OFHEO’s House Price Index.

Some of the recent decline in the rate of house price appreciation may be due to seasonal factors, but it seems quite clear that there’s also a gradual slowing of the rate of growth. Note, however, that with the exception of perhaps Boston and San Diego, even the frothiest cities still registered quite respectable price appreciation during the end of 2005 and beginning of 2006.

One last question that I’ll throw out for readers familiar with the California real estate markets: does anyone have a good explanation for the recent striking divergence between the San Diego and Los Angeles real estate markets? Typically those markets move very closely together (which is quite natural since they’re physically not very far apart), but over the past year the San Diego market has slowed dramatically while the Los Angeles market continues to appreciate at a rapid rate. Any theories?

All in all, this data confirms what other data have suggested for the past several months: the housing market in many parts of the US is slowing, but only gradually.