Another Report on Spiraling Housing Prices
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Freddie Mac announced on Tuesday that its Conventional Mortgage Home Price Index
(CMHPI) rose 15.0 percent on an annualized basis during the second quarter of
2005. This was an increase of 4.5 percent from the revised figures for the first
quarter of 2005 and 5.7 percent above the annualized rate for the fourth quarter
of 2004.
According to Frank Nothaft, vice president and chief economist for Freddie
Mac, the figures reflected the steady decline of mortgage rates during the quarter
which helped to encourage home buyers and drive up home prices. During the period
in question (April, May, and June) the weekly average for the Freddie's Primary
Mortgage Market Survey fell from 6.04 to 5.53 percent. Home sales in this same
period hit an annualized record of 7.62 million housing units.
As always, the results were very different from region to region. For example,
in the Pacific Division which includes Alaska, Washington, Hawaii, Oregon, and
California housing prices increased 5.2 percent during the
quarter, 22.4 percent when annualized. In this region home prices have increased
a stunning 87.5 percent in the last five years.
The South Atlantic Division (Washington, DC; Delaware, Florida, Georgia, Maryland,
North and South Carolina, Virginia and West Virginia) was second with a 4.4
percent increase for the quarter (16.9 percent annualized) and an increase of
62.5 percent over five years.
The Middle Atlantic Division (New Jersey, New York, Pennsylvania) did nearly
as well, increasing 3.8 percent during the quarter (16.1 percent annualized)
with a five-year appreciation of 72.2 percent.
On the other end of the scale is the East South Central Division encompassing
Alabama, Kentucky, Mississippi, and Tennessee and the West South Central Division
(Arkansas, Louisiana, Oklahoma, and Texas). The former increased 2.1 percent
(8.6 percent annualized, 26.9 percent over five years;) and the latter was up
2.3 percent (9.3 percent annualized.) The five year figure for that division
was 26.1 percent.
Vice President Nothaft said that home sales and housing starts are still expected
to set new records in 2005. "The devastating effects of Hurricane Katrina
will likely drive up costs of construction materials, and once
the rebuilding effort gets underway may slow deliveries of new homes in other
areas of the country as resources are reallocated to Louisiana, Mississippi,
and other areas affected by the storm."
The report is the first to reflect Freddie Mac's new methodology. Definitions
of metropolitan areas were changed based on the 2000 Census and a total of 379
Metropolitan Statistical Areas were included, an increase of nearly 200 areas
since the last study.
Amy Crews Cutts, Freddie Mac's deputy chief economist stated, "We
are excited by the addition of (these new) metro areas. We can now see more
clearly the impact of localized job losses or job gains on smaller communities.
Most of the job losses have come from the manufacturing sector while employment
gains have occurred consistently in construction, and home price trends have
mirrored the employment trends. Four metro areas are showing losses in home
values year over year, but no state is currently showing either quarterly or
annual decreases in average home values."
Commenting on the recent Gulf Coast losses, she said "Over the last 12
months ended in June 2005, homes in the Gulfport-Biloxi, Mississippi area gained
4.1 percent in value. Homes in Mobile, Alabama and New Orleans gained value
at a slightly faster rate, at 6.3 and 7.4 percent respectively. We have no way
at the moment to know the extent of the damage or how long it will take to rebuild
and repair damaged homes in these areas. We may see stronger growth in home
prices in nearby cities such as Baton Rouge as some people relocate there and
commute to their jobs once factories and plants are up and running again."
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