Industry News

Home Prices Surged 8.4 Percent Nationally In 2003

March 2, 2004

Pacific States Maintain Lead In Home Price Growth For Fourth Quarter

McLean, VA ? Freddie Mac announced today that its quarterly Conventional Mortgage Home Price Index (CMHPI) found that home values rose 8.4 percent from the fourth quarter of 2002 through the fourth quarter of 2003, up from the prior year (fourth quarter of 2001 to fourth quarter of 2002) when the growth rate was 7.6 percent.

"The 45-year low in interest rates set this past June spurred a huge refinance and home purchase wave that crested in the fourth quarter," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "Higher interest rates in the third and fourth quarters did little to quell interest in the housing market due to the very high economic growth in the second half of the year and the tax break that many households received."

The quarterly growth rates show a more marked increase in home values in the fourth quarter. Nationally, home values increased by an annualized rate of 17.8 percent nationwide in the fourth quarter of 2003. The third quarter 2003 annualized growth rate was revised upward to 5.9 percent.

"Even with the strong showing of home sales and housing construction in the second half of 2003, these fourth quarter home-price appreciation numbers are surprisingly high," said Cutts. "However, they are subject to revision because we do not yet have all of the data on originations in the fourth quarter and the figures are subject to biases created by the large volume of refinance activity in 2002 and earlier in the year. Often repeat refinancers did not get new appraisals but instead relied on the appraisal from their previous refi and now this effect is showing up as we move into a home purchase market. Because quarterly appreciation rates are more influenced by the effect of 'reusing' appraisals, we believe the annual figures more accurately portray changes in home values."

The Pacific states continued to maintain their four-quarter streak of leading the nation in annual house-price appreciation, growing at an impressive annual rate of 13.1 percent for the year. The Middle Atlantic states were second in growth with an annual appreciation rate of 11.9 percent. The New England states were not far behind, showing the next largest gain for the nation with an annual home-price growth rate of 11.2 percent. Then came the South Atlantic states, registering a gain of 8.9 percent, followed by the West North Central states with a smaller, but still very healthy, increase of 7.1 percent.

The East North Central states showed a rise in home values of 5.6 percent, trailed by the Mountain states, which experienced a rise of 5.3 percent in home values. Lastly, the East South Central states posted an expansion of 4.5 percent while the West South Central states ended the list for the third consecutive quarter, experiencing an annual growth rate of 3.9 percent for 2003.

"Housing construction and home sales are expected to slow from the torrid fourth quarter pace," said Frank Nothaft, Chief Economist. "Likewise, house price appreciation will moderate, but remain at a healthy 6.5 percent clip during 2004. With low interest rates and quickly accumulating home equity, we expect to see a continuing economic boost in the first quarter from cash-out refinances. Last year, families cashed-out about $140 billion of home equity while refinancing a prime, conventional mortgage. Because of home-value growth, home equity wealth did not decline."

The refinance share of mortgage applications in 2003 was a record 65 percent. "In 2004, we expect the refinance share to gradually decline from about 55 percent of applications during the first quarter to 35 percent in the fourth quarter, and average 42 percent for the year. Because of lesser refinance volume, single-family originations will drop by about one-third, from $3.7 trillion in 2003 to $2.4 trillion in 2004," added Nothaft. "Purchases of single-family houses hit a record 7.2 million sales in 2003, and we expect a new record of 7.3 million new and existing sales to be reached in 2004."

The Conventional Mortgage Home Price Index shows the following regional performances:

Pacific Division (AK, CA, HI, OR, WA): increased 6.6 percent (29.2percent, annualized) in the fourth quarter of 2003. Over the last 12 months,home values increased 13.1 percent, and during the last five years, homevalues have increased 66.4 percent.

Middle Atlantic Division (NJ, NY, PA): increased 5.9 percent (25.6percent, annualized) in the fourth quarter of 2003. Over the last 12 months,home values increased 11.9 percent, and during the last five years, homevalues increased 58.0 percent.

New England Division (CT, MA, ME, NH, RI, VT): increased 5.5 percent(23.9 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 11.2 percent, and during the last five years, home values increased 72.8 percent.

South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 4.2 percent (18.0 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 8.9 percent, and during the last five years, home values increased 43.1 percent

West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 3.6 percent (15.4 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 7.1 percent, and during the last five years, home values increased 40.7 percent.

East North Central Division (IL, IN, MI, OH, WI): increased 2.9 percent (12.0 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 5.6 percent, and during the last five years, home values increased 30.7 percent.

Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 2.8 percent (11.5 percent, annualized) in the fourth quarter of 2003. In the last 12 months, home values increased 5.3 percent, and during the last five years, home values increased 30.6 percent.

East South Central Division (AL, KY, MS, TN): increased 2.0 percent (8.5 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 4.5 percent, and during the last five years, home values increased 22.8 percent.

West South Central Division (AR, LA, OK, TX): increased 2.0 percent (8.4 percent, annualized) in the fourth quarter of 2003. Over the last 12 months, home values increased 3.9 percent, and during the last five years, home values increased 27.2 percent.

Jointly developed by Freddie Mac and Fannie Mae, the Conventional Mortgage Home Price Index features indexes for the nine Census divisions as well as a national index. The national index is the average of the nine divisional indexes weighted by the distribution of detached, one-unit, single-family structures in each Census division.

Unlike other home price indexes based on mean or median values of homes sold during a given period, the Conventional Mortgage Home Price Index is constructed, using regression techniques, from observations of actual sales prices or appraised values of the same homes over time. The street addresses of properties that serve as collateral for mortgages funded by the two secondary mortgage market firms are first processed using software certified by the United States Postal Service to create a uniform address format and are then matched to identify consecutive transactions on the same property. There are currently more than 26.8 million records in the repeat-transactions database used to construct the nine division indexes?this database includes transactions on properties serving as collateral on loans originated through the fourth quarter of 2003 and purchased by Freddie Mac and Fannie Mae by January 31, 2004.

|Conventional Mortgage Home Price Index Q4 2003 Release
All Entries Are Percent Changes	New Eng- land	Middle At- lantic	South At- lantic	East South Cen- tral	West South Cen- tral	West North Cen- tral	East North Cen- tral	Moun tain	Pacific	U.S
Quarterly Change Q3 2003-Q4 2003	5.5	5.9	4.2	2.0	2.0	3.6	2.9	2.8	6.6	4.2
Annualized Quarterly Change Q3 2003-Q4 2003	23.9	25.6	18.0	8.5	8.4	15.4	12.0	11.5	29.2	17.8
Annual Change Q4 2002-Q4 2003	11.2	11.9	8.9	4.5	3.9	7.1	5.6	5.3	13.1	8.4
5-Year Change Q4 1998-Q4 2003	72.8	58.0	43.1	22.8	27.2	40.7	30.7	30.6	66.4	42.9
Annualized 5-Year Change Q4 1998-Q4 2003	11.6	9.6	7.4	4.2	4.9	7.1	5.5	5.5	10.7	7.4

Source: Freddie Mac

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