Housing Bubble
House price gains slow in Q3, OFHEO report examines housing bubbles and regional cycles
WASHINGTON, D.C. – Armando Falcon, Jr., Director of the Office of Federal Housing Enterprise Oversight (OFHEO), today released OFHEO’s House Price Index (HPI), a quarterly report analyzing housing appreciation trends. OFHEO has determined that average U.S. home prices increased 6.16 percent from the third quarter of 2001 through the third quarter of 2002. The quarterly national average price appreciation slowed to 0.84 percent compared with 2.39 percent last quarter.
Each quarter, Fannie Mae and Freddie Mac provide OFHEO information on their most recent mortgage transactions. These data are combined with the data of the previous 27 years to establish price differentials on properties where more than one mortgage transaction has occurred. The data are merged, creating an updated historical database that is then used to estimate the HPI.
For the third quarter of 2002, 7 states experienced negative quarterly growth: Vermont, Illinois, Kansas, Michigan, Wisconsin, South Dakota and Alaska. Of the 185 ranked Metropolitan Statistical Areas (MSAs), 33 experienced negative quarterly growth. California dominates the top 20 with 9 MSAs showing especially rapid appreciation. In the last five years, the average U.S. appreciation has been 38.55 percent. Since 1980, average U.S. price appreciation has been 181.60 percent.
The report notes that while housing price “bubbles” generally are metropolitan area phenomena, periods of prolonged appreciation or depreciation (housing cycles) may stretch across larger geographic regions. In this case, housing prices in the Midwest are likely impacted by flattening productivity in the manufacturing sectors in 2001.
The report further examines regional housing cycles across and within regions. Using Census Divisions and Census Regions over the past 21 years it describes the patterns of similarity or differences in house price movements when comparing divisions within regions. The report also notes that another common trait within regions is the tendency for divisions to take turns occupying the lead during booms or busts over the 21-year period. For example, East North Central leads its region as a whole in the late 1980s boom, but West North Central leads the region for the most recent boom. New England leads the Northeast in the early 1980s, but lags Middle Atlantic during the late 1980s and early 1990s. This phenomenon again reverses itself in the late 1990s. The most recent data indicates very similar appreciation between the 2 divisions indicating that Middle Atlantic is catching up. It is proposed that "this phenomenon could possibly be linked to labor force migration. That is, as areas become expensive, businesses move to neighboring areas andtake the labor force with them. Labor force data, however, does not necessarily confirm this hypothesis. It is probably more likely that prices in given areas may overshoot for a period of time, and natural market adjustments take place in periods following".
By comparison, major market corrections occur in Northeast Region and Pacific Division. "Large and volatile coastal cities (such as San Jose, Boston, and New York ) are dictating the high volatility in prices that we are witnessing in these regions. While all of the divisions cycled upwards during the most recent boom, the Northeast Region and Pacific Division experienced the largest gains (and have historically suffered the largest losses)".
e-mail:sites@housing-bubble.com