Annual home price rise slowest since 1995

By Lynn Adler

NEW YORK (Reuters) - Home prices posted the first quarterly drop in 13 years in the third quarter, dragging down annual price appreciation to the slowest pace since 1995, the Office of Federal Housing Enterprise Oversight said on Thursday.

Compared with the second quarter of 2007, house prices fell 0.4 percent, the government regulator said in a statement on its Web site. The annual price increase slowed to 1.8 percent, the lowest four-quarter rise since 1995.

"While select markets still maintain robust rates of appreciation, our newest data show price weakening in a very significant portion of the country," OFHEO Director James Lockhart said in the statement.

"Indeed, in the third quarter, more than 20 states experienced price declines and in some cases those declines are substantial," he said.

Prices dropped in 10 states over the last four quarters, the largest number of states posting declines since the 1996-1997 period.

Many cities and states where prices are slumping the most had staged the biggest price surges earlier in the decade, OFHEO said.

"Rising inventories of for-sale properties are clearly having a material impact on home prices," OFHEO Chief Economist Patrick Lawler said in the statement. "Until those inventories shrink, that will be a great source of resistance to price increases."

Home foreclosures are boosting the supply of unsold homes and also pressing on prices.

"Compounding this influence is the fact that the sellers of foreclosed homes, frequently creditors, may be strongly averse to holding onto the property for an extended period of time. As a result, they may be willing to sell for lower prices than resident homeowners," OFHEO said in its report.

Falling prices mean more homeowners without equity, meaning the value of their house is less than their mortgage balance. Owners in this situation may just walk away from the property and mortgage, OFHEO said.

REPORTS DIVERGE BUT STORY SIMILAR

While OFHEO still shows home prices up over the year, in stark contrast the S&P/Case-Shiller National Home Price Index, the path of the gauges is similar. Home prices are appreciating less or dropping in a growing number of states.

The S&P/Case-Shiller index this week showed prices slid 4.5 percent in the third quarter from a year earlier, matching a record drop from the prior period. In the quarter, the index dropped 1.7 percent from the second quarter, its biggest quarterly drop in the index's 21 year history.

OFHEO, for its part, said its index "weights sales prices differently than other measures, incorporates data from a wider geographic area and is focused on homes with conventional, conforming loans."

Conforming loans are $417,000 or less, and thus can be purchased by top U.S. home funding companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N).