It has, by no means, burst, but the quarterly House Price Index (HPI) report issued by the Office of Federal Housing Enterprise Oversight (OFHEO) on March 1 indicates that there may be a slow leak in the housing bubble.

Same house sales during the fourth quarter showed an increase of 1.69 percent over the third quarter. This represents a "sharp deceleration,' in OFHEO's words, from the appreciation rate of 4.79 in the third quarter. This may or may not be significant since the third quarter rate was exceptional large. But, as house price appreciation for the entire year of 2004 was 11.17 percent, it is a little sobering that the most recent figure represents an annual rate of only 6.77 percent.

OFHEO Director Armando Falcon, Jr. said 'This report reflected a slowing of the tremendous house price appreciation we've seen recently, but it (housing prices) is still growing at a strong pace.'

Patrick Lawler, OFHEO Chief Economist, pointed out that house prices were still outpacing the growth of non-housing goods and services represented in the Consumer Price Index which grew only 3.6 percent in 2004.

The HPI is among the most comprehensive of the many regular reports on the state of the housing market published by government agencies and private associations. OFHEO is the regulatory agency responsible for Fannie Mae and Freddie Mac and thus privy to their huge data bases of information on mortgages acquired by the two lending corporations. Statistics reflect the actual appreciation of the same houses as they are re-purchased or appraised for refinancing. The data covers a 30 year period.

Nevada, where prices were up 32.38 percent, continued to lead all states in home price appreciation in 2004, but the increase for the last quarter was only 2.92 percent (11.68 percent annualized). Las Vegas/Paradise was again the strongest metropolitan area with an annual appreciation of 36.23 percent; however, its 4th quarter figure was lower than the national average, only 1.67 percent. If this rate were to continue for the year, Las Vegas would have an appreciation of only 6.68 percent for 2005.

Although every state and large Metropolitan Statistical Area (as defined by the Office of Management and Budget as based on 2000 census data) continued to have a positive rate of appreciation, there were 31 Metropolitan Statistical Areas (comprised of smaller Metropolitan Divisions) of the 265 that are ranked by the report that showed negative appreciation. Leading the list was Blacksburg-Christiansburg-Radford, Virginia with a negative house price growth of -2.45, down from a positive appreciation of 3.98 percent in the third quarter. Two other Virginia areas, Charlottesville (-0.58 from 6.92 percent) and Kingsport-Bristol, Tennessee/Virginia (-1.24 from 4.07 percent) slid into negative territory. Four Ohio areas also had negative figures, but previous appreciation there had been modest in the past so declines were not so striking.

However, while the text of the HIP is a little scary, the data itself provides a little historical perspective that is reassuring. The third quarter rate of appreciation was, as stated above, large. In fact, it was the largest in at least 25 years (and more than double the rate of the next largest, one year earlier) and may have been driven by a drop in the number of refinances as a share of total mortgage volume. (See 'Same House Values Continue to Climb, December 7, 2004 on this site for a full explanation of HPI methodology and how its data can be impacted by refinances vs. home purchases.) While a drop from that impressive Q3 figure is a little disconcerting,, the most recent quarterly figure of 1.69 percent is identical to or higher than 48 of the 60 quarters reported by HPI since 1990.

Maybe it isn't even a slow leak. Maybe it is just an indication that some of the super-hot areas of the country, housing wise, may be returning to more rational price growth. The next OFHEO report is due June 1. It should tell the tale.

Most statistics in the report, when annualized, have not changed greatly from what we reported here in the December 7, 2004 article, but it still makes interesting reading for the real estate junky. The entire 76 pages in PDF format can be accessed at