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Annual home price rise slowest since 1995
November 29, 2007 / 3:18 PM / 10 years ago

Annual home price rise slowest since 1995

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.

OFHEO’s index tracks average single-family house price change in repeat sales or refinancings of the same homes, and is based on data from Fannie Mae and Freddie Mac.

WINNERS, LOSERS

Michigan, California, Nevada, Massachusetts and Rhode Island had the biggest price declines over the year, OFHEO said. Prices fell 3.7 percent in Michigan, 3.6 percent in California and 2.4 percent in Nevada.

Prices in states such as California and Nevada surged earlier this decade, driven by speculators looking to quickly sell at a profit. Many of those owners are now stuck with empty homes they cannot turn around even as prices sink.

Seventeen of the 20 cities with the most annual price depreciation were in Florida, another state with heavy speculative buying, and California, OFHEO said.

Utah, Wyoming, Montana and New Mexico had the fastest price appreciation over the year. Prices rose 12.9 percent in Utah, 11.8 percent in Wyoming, 7.7 percent in Montana and 7.4 percent in New Mexico.

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