Housing Bubble
Home price appreciation slows but no national housing bubble according to Freddie Mac
Freddie Mac announced that its quarterly Conventional Mortgage Home Price Index (CMHPI) found growth in home values increased by an annualized rate of 3.2 percent nationwide in the third quarter of 2002. This rate is down from a revised annualized rate of 8.8 percent for the second quarter of 2002. There was, as had been expected, significant upward revision for the second quarter values indicating that growth in that quarter was stronger than originally estimated. These revisions were consistent with the home sales figures that were released for the last two months of the second quarter and the overall strength of other housing indicators.
The index also showed that the annual house-price appreciation rate was 5.5 percent from the third quarter of 2001 through the third quarter of 2002. National annual growth rates in home values peaked at 9.1 percent between the first quarter of 2000 and the first quarter of 2001 and have been decelerating generally for six quarters. The annual growth rate is closing in on the 50-year U.S. average annual growth rate of 4.8 percent.
Home values in the Pacific States showed the largest gains in value, growing at a brisk annualized rate of 9.0 percent during the third quarter. The New England states came in second with an impressive growth rate of 7.4 percent. The Middle Atlantic states came third, showing an annualized gain of 3.8 percent. The East South Central states posted a growth rate of 2.9 percent while the South Atlantic states followed closely with a growth rate of 2.8 percent.
The third quarter of 2002 marks the first time in more than four years that more than one region has had a quarterly growth rate in home values below the rate of general inflation. In this quarter there are four such regions: the Mountain states with annualized home price growth of 2.0 percent, the West South Central states with 1.8 percent growth, the West North Central states at a mere 0.5 percent increase in values, and the East North Central states showing a small negative rate of appreciation rate of minus 0.1 percent. Inflation as measured by the Consumer Price Index in the third quarter of 2002 was running at an annualized rate of 2.5 percent.
“The rate of home price growth will continue to ease into 2003, averaging 5.0 to 5.5 percent for the U.S., and certain areas will undoubtedly begin to experience some negative growth. We still do not see a national housing price bubble anywhere in the foreseeable future,” said Freddie Mac Chief Economist Frank Nothaft.
“The refinance boom continues as mortgage rates reached a 37-year low in November. The appreciation in home values has enabled families to tap into some of their home equity to bolster spending on home improvements, consumer goods, and investments. Freddie Mac’s quarterly refinance report shows that 63 percent of refinances in the first half of 2002 resulted in a new loan that was at least 5 percent higher than the original loan,” added Nothaft.
Freddie Mac is projecting a 57 percent refi share for 2002, falling to approximately 45 percent for 2003.
Freddie Mac economists currently expect single-family mortgage originations to increase with the low mortgage rates currently available and have revised the forecast for originations upward to a record $2.3 trillion for 2002.
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