Tulsa Home Value Appreciation
America's home value appreciation rate is hot, hot, hot -- hotter than any time in nearly three decades, according to the latest federal statistical study.
Though most housing and mortgage market economists had forecast a steady slowing of appreciation rates for 2004, home values have instead accelerated. The home price inflation rate hit a 25-year high of 12.97 percent in the third quarter of 2004, measured against the third quarter of 2003.
But 12.97 percent barely hints at how torrid the housing inflation rate really is, said the Office of Federal Housing Enterprise Oversight (OFHEO), the agency that tracks home price movements in more than 250 metropolitan and rural markets. OFHEO's database sample comprises over 28.8 million repeat sales and refinancings on existing single-family properties spread across the country. Since the houses were all financed or refinanced through Fannie Mae or Freddie Mac, OFHEO has direct access to the properties' selling prices and appraisals.
The annualized quarterly rate for the country as a whole during the third quarter was 18.48 percent -- also the highest recorded by the Home Price Index in its 29 years of existence. But dozens of large metropolitan areas far outstripped even that rate on an annual basis. Consider these eye-popping numbers:
? On a year-to-year basis, home values rose by 35.78 percent in Nevada, according to OFHEO, followed by Hawaii (28.29 percent), California (27.18 percent), Washington DC (23.95 percent), Rhode Island (22.54 percent), and Maryland (22.32 percent).
? Thirteen states had annual appreciation rates in excess of 15 percent, and 26 states had rates in double digits, another first. Even the slowest appreciating states had rates close to or higher than 4 percent. As recently as mid-1998, by contrast, 4 percent was the average annual appreciation rate for the U.S. as a whole. No states in the latest study experienced a decrease in home values during the preceding 12 months.
? A handful of individual metropolitan housing markets literally went off the charts in the latest OFHEO data. Homes in the Las Vegas-Paradise market gained 41.74 percent in resale value over the last 12 months, followed by Riverside-San Bernardino, CA (33.81 percent) and Reno, NV (31.9 percent).
? Among the metropolitan areas with the highest populations that experienced super-heated appreciation, Los Angeles took the top of the list at 30.47 percent, followed by San Diego at 30.42 percent. Eleven of the top 20 appreciating markets were in California.
? Hottest markets outside of California and Nevada were along the East coast: Port St. Lucie, FL (28.15 percent), Palm Bay-Melbourne, FL (28.06 percent), Washington DC (including VA, MD and West Virginia, up 24.01 percent), Punta Gorda, FL (23.84 percent) and Atlantic City, NJ (23.65 percent).
? Slowest appreciating metropolitan markets tended to be in areas where local economic growth has been weak and unemployment is a problem -- Lafayette, IN (0.10 percent appreciation over the last year), Ogden, UT (1.12 percent growth), Anderson, SC (1.27 percent) and Austin, TX (2.08 percent).
OFHEO chief economist Patrick Lawler attributed the appreciation rate spurt to two possible factors: Continued low mortgage rates -- hovering just above 40-year lows for much of 2004 -- and a statistical quirk caused by the phaseout of the refinancing boom.
Lawler believes the appraisals used to value many refinanced properties during the past few years could have understated the actual market worth of the houses. That, in turn, could cause a spike in the reported prices of the houses when they are resold and appraised for new purchasers.
The forecast for home sales has trended up as the year progressed, fueled lately by added demand resulting from the impact of recent hurricanes, according to the National Association of Realtors.
David Lereah, NAR's chief economist, said that at the beginning of the year it was thought that 2005 would be the second best total for both existing- and new-home sales, but by June it was apparent that another record was in the works. "Post-Katrina, our sales projections for this year have moved even higher," Lereah said. "Short-term momentum is very strong, and our Pending Home Sales Index just set a record. In addition to the housing needs of hurricane victims, we may be seeing some 'fence jumping' from home buyers who are getting into the market before interests rates move higher."
Existing-home sales are forecast to rise 4.2 percent to 7.07 million in 2005, while new-home sales are expected to increase 7.1 percent to 1.29 million. Total housing starts - single-family and multifamily - should be up 4.5 percent to 2.04 million units this year, the best showing since 1973, and single-family starts are seen at a record of 1.70 million.
"Inflationary pressures - driven by higher energy costs - have become a concern, so we anticipate two more hikes in the fed funds rate by the end of the year. In addition, long-term interest rates also are rising at a faster clip," Lereah said. The 30-year fixed-rate mortgage is projected to reach 6.2 percent in the fourth quarter, and trend up to 6.7 percent by the end of next year.
The national median existing-home price for all housing types is forecast to increase 12.5 percent in 2005 to $208,400, while the median new-home price should rise 3.9 percent to $229,700.
NAR President Al Mansell of Salt Lake City said some easing in home sales is expected in 2006. "The rise in mortgage interest rates is likely to have a slight breaking action on the housing market, and the upside of that is it would help to bring the market closer to balance between home buyers and sellers," he said. "As a result, there should be a cooling in the rate of price growth -- on balance, the overall market should continue to favor sellers with price appreciation remaining above the high end of historic norms. The investment fundamentals for housing remain solid."
In 2006, NAR expects the median existing-home price to grow by 5.2 percent and the median new-home price to rise 7.1 percent. Historic home-price gains are 1.5 percentage points above the rate of inflation, which is seen at 2.6 percent next year.
"Although energy prices are the chief culprit in current inflation concerns, we project oil prices to settle early next year -- that would cause inflation to quickly dissipate," Lereah said. The Consumer Price Index is forecast to rise 3.5 percent for all of 2005 before easing early next year.
Inflation-adjusted disposable personal income is expected to grow by 1.4 percent for 2005. The U.S. gross domestic product (GDP) is seen at 3.5 percent for all of 2005, with GDP picking up early next year as hurricane rebuilding accelerates. The unemployment rate is projected to average 5.2 percent for the next three quarters, then decline to 5.0 percent in the second half of next year.
Supplied by Money Mag
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