The Office of Federal Housing Enterprise Oversight (OFHEO), the agency charged with oversight of Freddie Mac and Fannie Mae, has issued its House Price Index (HPI) for the third quarter of 2004.

The report shows continued strong appreciation in single family house prices, an increase of 12.97% over the same quarter in 2003. Prices in the third quarter rose 4.62%, an annualized rate of 18.48 percent.

According to Armando Falcon, Jr., Director of OFHEO the 'growth in house prices over the past year surpasses any increase in 25 years.

Federal government agencies, states, and universities issue a dizzying number of housing reports, each based on different sectors of the real estate market ' housing starts, new home sales, sales of existing houses, plus an array of mortgage based data.

Within its considerable limitations, the HPI is an interesting report. First, it is based solely on data compiled from Freddie Mac and Fannie Mae, based on mortgages purchased by the two secondary market giants. Homes bought through or refinanced by VA, FHA, or other mortgage financing sources are not included. Secondly, it excludes by definition houses that have not traded hands or been refinanced since 1975.

For example, if House A, built in 1952, was sold for $100,000 in 1979, refinanced (by Fannie or Freddie) in 1985 for $118,000, and sold for $269,000 in 2004, the HPI tracks those three price points to measure the actual appreciation of that specific home, doing this for some 28 million homes on literally, a house by house basis. It is somewhat analogous to the monthly report by major retailers on same-store sales.

Therefore, while HPI is limited because it measures only a relatively small segment of the total housing market, it does measure real, documented value increases for given houses and these should statistically, represent a significant portion of the existing house market.

Another interesting factoid: OFHEO devotes several pages of this quarterly report to caveats about its own data because of quarter to quarter fluctuations in the percentages of refinances reflected in the data. Apparently, when large numbers of homes are being financed, the rate of appreciation drops, probably because appraisers tend to undervalue a home being financed if there is obviously an adequate loan to value. In other words, if a homeowner is seeking a $60,000 refinance on a house that is worth, from the curb, $120,000, the appraiser may be less than aggressive in trying to prove that the home may really be worth $150,000. Loan to value ratios are almost always higher on new home purchases and appraisers may have to push to justify a price to qualify a buyer for a five or ten percent down payment. Refinances last quarter were substantially below those in previous quarters which may have artificially held down increases at that time.

Patrick Lawler, OFHEO's Chief Economist, stated that the big increase in home prices shown by the report 'is particularly steep when compared to the price of non-housing goods and services. House prices grew 12.97 percent in the past year, while other goods and services as measured by the Consumer Price Index grew 2.68 percent.'

HPI breaks data down by state, region, and by 361 Metropolitan Statistical Areas (MSAs) and gives data for each of these for the current quarter, the last year, five years, and since 1980. The report also featured an informative narrative about several MSAs, focusing on some of the many factors that impact home prices.

Some highlights.

HPI prices for the entire county have risen 234.14% since 1980. Massachusetts had, by far, the greatest appreciation in house values during that time period, 566.08%; New York was second at 443.48% and Rhode Island third (424.47). Oklahoma and Texas were at the bottom with appreciations of 77.60 and 92.86. It seems amazing that, given the incredible appreciation elsewhere, prices in those two states failed to even double in 24 years.

The current statistics reveal a different bunch of winners. As has been widely reported elsewhere, Nevada's incredible growth in the last few years is reflected in its housing prices. It led the county with a quarterly increase of 12.44% and a one year appreciation of 35.78 percent. Second was Hawaii at 28.29 for the year, followed by California (27.18), the District of Columbia (23.95) and Rhode Island (22.54). Dragging up the rear are Indiana (3.98%), Utah (3.87%), and, again, Texas (3.81.)

The fastest growing MSA during the last year is Las Vegas-Paradise Nevada (41.74%) followed by Riverside-San Bernardino-Ontario, California (33.81) and Reno-Sparks, Nevada (31.90.) Of the fifteen fastest growing MSAs in the country, 11 are in California, two in Nevada, and two in Florida.

But a rising tide does not lift all boats, and Lafayette Indiana proved that by barely moving this year (0.10%) and actually declining in the third quarter (-0.68), Ogden-Clearfield, Utah rose a miniscule 1.20% and Anderson, South Carolina (1.27%). Also winning some sort of prize for worst performance was Lake Charles, Louisiana which had a negative appreciation of -3.5 for the quarter. Tulsa, Oklahoma also ran in the red for the third quarter (-0.22).

If you are a real estate junky, you should check out the website, The entire report is a PDF document that runs 75 pages without a table of contents, but state tables begin on Page 10 and MSA breakdowns on Page 21. Data is also available in maniplable ASCII files if you really want to get into it.