House Price Index Shows Largest One Year Increase Since 1970's

September 2, 2004

U.S. House Prices Show Annual Rise of 9.36 Percent

WASHINGTON, D.C. – Average U.S. home prices increased 9.36 percent from the second
quarter of 2003 through the second quarter of 2004. Appreciation for the most recent quarter
was 2.21 percent, or an annualized rate of 8.83 percent. The figures were released today by
Armando Falcon, Jr., Director of the Office of Federal Housing Enterprise Oversight (OFHEO),
as part of OFHEO’s House Price Index (HPI). The HPI is a quarterly report analyzing housing
price appreciation trends.

“The appreciation over the past year is the largest four quarter increase since 1979,” said
Patrick Lawler, Chief Economist at OFHEO. “These data show no signs of the longanticipated,
and ultimately inevitable, slowing of house price inflation.”

The quarterly appreciation is more than 50 percent faster than the upward revised 1.45 percent
increase in the first quarter of 2004. Over the past four quarters, house price rises far
exceeded gains in the prices of non-housing goods and services incorporated into the
Consumer Price Index. House prices rose 9.36 percent, while the price of other goods and
services rose 3.03 percent.

“House prices may become increasingly vulnerable to potential sustained higher interest rates
in the future, but that has not happened so far,” said Lawler. “Second quarter data do not fully
reflect increases in borrowing costs in the spring of this year because of the timing lag between
sales agreements or appraisals, and mortgage closings. Since then, mortgage rates have
eased, however, and the prospects of substantial increases in the near future appear to have
declined,” Lawler said.

The four states experiencing the greatest increases over the past year are: Nevada, Hawaii,
California and Rhode Island. Like last quarter, the smallest increases occurred in Utah, Texas,
and Indiana. However, this time no states experienced negative quarterly growth.

Other significant findings in the HPI:

  1. U.S. house price appreciation over the past year of more than 9 percent represents an
    acceleration over the 7.0 percent average annual rise of the preceding four years.
    However, price changes have actually slowed in the New England and West South
    Central (Arkansas, Louisiana, Texas and Oklahoma) Census divisions. New England
    “slowed” to a 10.65 percent increase, while West South Central prices rose only 3.83
    percent – the smallest increase of all census divisions.
  2. Nevada’s second quarter increase of 7.53 percent was greater than the increase over
    the entire past year for a majority of states.
  3. The top 17 Metropolitan Statistical Areas (MSAs) with the largest price gains in the past
    year are all in California (12), neighboring Nevada (2), and the central Atlantic coast of
    Florida (3). All have increases of more than 17.6 percent. The highest was Las Vegas
    at 24.9 percent.
  4. North Carolina and Indiana each had four MSAs among the 20 MSAs with the lowest
    rates of house price appreciation. Texas had three, including the lowest (Austin-San

    Soucre: OFHEO

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