Unlike the see-saw figures on housing sales and house prices that come out monthly from the National Association of Realtors and the Census Bureau, the House Price Index (HPI) published quarterly by the Office of Federal Housing Enterprise Oversight (OFHEO) takes the longer view.

The HPI for the fourth quarter of 2006 was released on March 1, and while it clearly shows that the bubble is no longer expanding insanely, prices have stabilized and there is still modest appreciation. In fact, the appreciation, 1.1 percent over the three month period, was slightly better than the 1.0 percent growth in the third quarter.

Prices for the entire year (since the end of the fourth quarter, 2005) were up 5.9 percent. In quarter three the year-over-year appreciation (since Q3 2005) was 7.88 percent. Those two quarters followed eight straight quarters where the year-over-year increase was in double digits. Even at 5.9 percent housing prices still far outstripped the remainder of the Consumer Price Index in 2006 where non-shelter prices rose 0.9 percent.

Utah led the list in housing appreciation with a fourth quarter increase of 3.67 percent followed by Wyoming with 3.28 percent and New Mexico and Idaho, both at 2.14. These same states had one-year appreciation of 17.55, 14.29, 13.99, and 13.08 percent respectively. Negative appreciation for the quarter occurred in five states, Hawaii, North Dakota, California, Nevada, and Nebraska. In every case the decline was less than 1 percent. Only one state, Michigan, showed negative appreciation for the entire year.

Aggregating the data to a state level definitely smoothes out the true variability that exists. Some individual Metropolitan Statistical Areas (MSA's) were still enjoying rampant appreciation from the fourth quarter of 2005 to the fourth quarter of 2006. For example, in Bend, Oregon prices were up 21.4 percent, Wenatchee, Washington increased 20.9 percent, and Provo-Orem, Utah prices appreciated 19.9 percent. Negative appreciation was also sharper on the MSA level although the greatest price drops were relatively modest; Kokomo, Indiana, -5.3 percent; Santa Barbara-Santa Maria-Golenta, California, -4.2 percent; Jackson, Michigan, -3.9 percent. Of the 282 "ranked" MSAs for which data was provided, 256 had positive four-quarter appreciation, 25 had price declines, and prices were unchanged in one city.

The report noted that quarterly appreciation in the Pacific Census Division (Washington, Oregon, California, Hawaii, and Alaska) is decelerating rather dramatically. Prices grew 0.4 percent between the third and fourth quarter, nearly one full percentage point below the growth rate between the second and third. It appears to be California which is driving this deceleration - 21 of the 26 MSA's in the state had negative appreciation. However, the two top ranked MSAs, Bend, Oregon and Wenatchee, Washington exemplify the sharp decline in rates of appreciation. Bend appreciated 21.39 percent over the course of 2006 but only 1.73 percent in the fourth quarter; the figures for Wenatchee were 20.94 and 3.46.

Hurricane Katrina continues to influence regional prices; areas in and near the affected area showed double digit increases, indicating continuing housing shortages.

We are great fans of the HPI but it does have its limitations. It examines only homes that have taken out at least two mortgages over the last 32 years, and those mortgages must be in the Freddie Mac or Fannie Mae conventional loan databases. For example, if a home was purchased in 1985 for $100,000, refinanced in 1989 based on an appraised value of $140,000, and sold again in 2006 for $410,000, there would be three data points for that single property. In the analysis individual properties are compared only to themselves. The HPI excludes homes that are purchased for cash or are privately financed and it does not include homes that are financed for more than the current limit for conventional mortgages which in 2006 and 2007 is $417,000. The survey includes both purchase money mortgages and mortgages taken to refinance an earlier loan. The inclusion of refinancing provides many more data points along the timeline but as the authors are quick to admit, does appear to also skew the information. For example, while the HPI for the whole of 2006 is 5.9 percent, when only home purchases are considered that number drops to 4.1 percent. This, however, is not a consistent pattern - in many quarters over the years refinancings drag down the HPI.

Anyone wishing to look at figures for their own communities can access the current HPI at ofheo.gov. The link to the complete study is on the home page. If your town does not appear in the alphabetical list of ranked MSA's scroll down to the unranked list. There are many smaller cities listed there.