The problem with the majority of real estate surveys and reports is that they are by definition lagging indicators. So while some "experts" are predicting the end of the real estate world and others are assuring us of a soft landing or a gradual deflation of the housing bubble, or employing other euphemisms to comfort the potentially afflicted, there are few current figures to bolster the theories of either group.

The Office of Federal Housing Enterprise Oversight (OFHEO) House Price Index released late last week is a case in point. Although it shows that house-on-house sales prices were up 12.54 nationally over the last year and 2.03 percent during the first quarter of 2006, an annualized rate of 8.12 percent, these figures are lagging from two to five months behind real time events.



The various monthly reports on home sales which come from different sources - The National Association of Realtors, the Census Bureau and Housing and Urban Development, the National Association of Home Builders, and others, all automatically reflect a three week delay in new or existing home sales activities; i.e., April figures are reported near the end of May. Add to that the time it takes from an accepted offer (the current market) to recording the sale, probably an average of six to eight weeks and often even longer for new house figures, and we will have little or no idea where the market is today until sometime in late July.

But, until and unless the crystal ball is perfected, these various studies are the best we have to work with and the devoted student can certainly graph them to try to establish trends. The wise will not, however use the results to sense opportunity or predict disaster.

The OFHEO House Price Index uses data from Fannie Mae and Freddie Mac (the enterprises OFHEO is charged with overseeing) to construct and analyze data on the sales or refinancing of the same house over time. Thus, if a house was mortgaged through a Freddie or Fannie mortgage in 1992, refinanced in 1997, and sold and newly financed in 2006, there will be three data points for that house. Houses which were purchased for cash or through private financing or which have not changed hands or been refinanced through Freddie or Fannie since 1975 are either not included in the survey or may be missing data points corresponding to any non-GSE transactions. The Index currently includes data from 31 million repeat transactions over the last 31 years. Thus, while it is far from a perfect predictor of where we are going, it certainly is a good record of where we have been.

OFHEO reports its data in a number of different formats. For example, the quarterly index for the last two years looks like this:

Quarter Q. Home Price Appreciation (%) Q. Appreciation Annualized (%) Appreciation Same Quarter a Year Earlier (%)
Q1, 2006 2.03 8.12 12.54
Q4, 2005 3.07 12.28 13.33
Q3, 2005 3.23 12.93 12.71
Q2, 2005 3.66 14.65 14.14
Q1, 2005 2.75 11.00 13.15
Q4, 2004 2.50 10.01 11.99
Q3, 2004 4.54 18.17 12.94
Q2, 2004 2.76 11.06 9.86
Q1, 2004 1.70 6.79 8.24

So, the price appreciation in the first quarter of 2006, when activity was supposed to be slowing, was lower than the previous seven quarters but higher than the rate exactly two years earlier when the housing market preparing to really rev up. Conclusion? None that we are willing to draw.

The current OFHEO study ranks the St. George, Utah area at the top on the basis of housing appreciation. Prices there increased 6.88 percent during the first quarter and 38.40 for the year. St. George, increasingly a retirement destination for folks from Utah and Idaho, was followed by Naples-Marco Island and Cape Coral-Ft. Myers, Florida, both of which had annualized appreciation well over 36 percent. In fact, 10 of the top 20 areas were in Florida. You have to drop down to number 14 on the index, Coeur d'Alene, Idaho, to find a location out of a temperate zone - all but one of the previous 13 (Bend, Oregon) was in the Sun Belt as were 17 of the top 20 with Boise City-Nampa Idaho also breaking the pattern. Interestingly, Las Vegas which has been the phenom of house price appreciation now appears nowhere in the top 20.

So are retirement havens now the only thing driving price increases? Only three of the bottom 20 ranked areas were in temperate zones - two in South Carolina and one in North Carolina. The rest were located in Michigan (eight areas), Ohio (three) Indiana and Colorado (two each), Pennsylvania and Iowa.

For the first time since the fourth quarter of 2002 there were negative appreciation rates noted for some states (although it has occurred in metropolitan areas and 14 of the bottom 20 showed negative appreciation for the first quarter.) Small statewide negative appreciation occurred in both Iowa and South Dakota between the fourth quarter of 2005 and the first quarter of 2006.

Based on the report, housing prices have still continued to grower faster over the past year than 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.