Last week was a big week for news about the housing bubble and the quarterly House Price Index (HPI) report of the Office of Federal Housing Enterprise Oversight (OFHEO) released on March 1 was a good deal more optimistic about price growth than were the Census Bureau and Department of Housing and Urban Development joint report on new home sales and the National Association of Realtors existing home sales report, both issued days earlier and both showing that sales and price increases are slowing down.

The OFHEO report deals only with housing prices not sales figures, slicing and dicing this data in many ways and providing years of historical background, making it one of the most interesting of the dozen or so housing reports released monthly or quarterly. The study considers data only from same house sales or refinancing so new construction or houses with no previous mortgage activity since 1975 when the study started are not included in the survey. Wednesday's report is for the Fourth Quarter of 2005 and boldly states that housing prices have continued to climb at near record levels.

Average home prices increased 12.95 percent from the fourth quarter of 2004 through the fourth quarter of 2005. The rate during the last quarter of that period was 2.86 percent or an annualized rate of 11.4 percent. This increase during 2005 is similar to the revised increase of 12.55 percent for the year ended with the third quarter "showing no evidence of a slowdown."

While the 2.86 percent increase was lower than the 3.65 percent and 3.14 percent recorded in the second and third quarters respectively it was higher than the first quarter of 2005 and higher than in four of the previous eight quarters.

Patrick Lawler, Chief Economist for OFHEO noted that while "deceleration continues in some areas, appreciation generally is still extremely strong. Mortgage rates climbed significantly during the second half of last year, but the effect of that increase on price appreciation so far appears to be limited."

It has been a while since we looked at an OFHEO report and the change in the hot spots was notable. While Nevada and California had led in appreciation, Arizona and Florida are now on top with their yearly figures. Arizona home prices had an appreciation rate in the fourth quarter of 6.99 percent, annualized to 34.90 percent and Florida figures were 5.38 percent and 26.83 percent. California was sixth for the year at 21.07 percent and Nevada was number 11 at 18.02 percent - slightly more than half the figure one year ago. Michigan ranked 51st with an annualized rate for 2005 of 3.76 percent. Also at the bottom were Indiana, Nebraska, and Ohio.

Eighteen states had one-year appreciation rates greater than the national average, and only two, Vermont and New Mexico were at or below the national average for the quarter - further evidence that appreciation is continuing in those top tier states,

Phoenix-Mesa-Scottsdale, Arizona the top ranking Metropolitan Statistical Area (MSA) in the country with an annualized appreciation of 39.67 percent and a 7.77 rate for the quarter. Other markets with high annual appreciation are Naples-Marco Island, Florida (38.89 and 9.49 percent) Cape Coral-Fort Myers, Florida (36.19 and 7.19 percent) and St. George, Utah (35.27 and 8.21 percent). Of the twenty top MSAs in the county 10 were in Florida, four wholly or partially in Arizona and three in California. One year ago 14 were in California, four in Florida and two in Nevada.

At the bottom of the rankings was Burlington, North Carolina which showed a -2.01 percent increase for the quarter and a -1.16 for the year. Bay City, Michigan was also in the negative column for the quarter at -1.75 but managed to eke our a positive annualized rate of 0.43 percent

Of the bottom 20 MSAs, six were in Michigan and three in Ohio.

The Mountain region was the fastest appreciating area of the country at 18.79 annualized and 4.42 for the quarter with the Pacific region following closely at 18.75 and 4.05 percent. The South Atlantic which includes the coastal states from Maryland to Florida appreciated at the fastest rate since 1975 when OFHEO started collecting data. Prices there were up by 17.81 percent over the four quarters ending December 31, 2005.

OFHEO has noted in the past as in this report that refinancing has an impact on the rate of appreciation particularly, we would assume, when homeowners are requesting cash out. If only the data for purchase money mortgages is considered, the annualized rate of appreciation for the four quarters of 2005 is 10.81 compared to the total House Price Index of 12.95 percent.

OFHEO devotes a significant portion of this report to the situation in the area devastated by Hurricane Rita, analyzing purchase mortgage activity and price trends for five metropolitan areas in Louisiana and Mississippi. Those concerned with these areas can review the entire report at