American Home-Price Gains Grind to Slowest Pace In 30 Years as Housing Slump Deepens
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American home-price growth slowed during the second quarter from a year earlier in the sharpest three-month plunge on record, according to a government report issued today that indicates this year’s housing slump is deepening.
“The wheels are coming off the housing market,” said Scott Anderson, an economist at Wells Fargo & Co. in Minneapolis.
Prices for single-family homes rose an average of 1.17% during the period, compared with 3.65% growth in the second quarter of 2005, according to a report issued today by the Office of Federal Housing Enterprise in Washington. The drop was the biggest since the agency began keeping records in 1975. The report doesn’t give an average price, only the percent of change.
The quarterly slowdown came during the “spring selling season,” when about half of a year’s home sales typically occur, suggesting the housing market may be slowing more rapidly than economists including Anderson initially predicted. In 2005, the last of 5 record years for home sales and price gains, the second quarter was the strongest, according to Ofheo data.
Higher mortgage rates discouraged buyers and pushed the inventory of existing homes on the market to 3.86 million in July, the highest ever recorded, the National Association of Realtors said August 23. The supply of new houses for sale in July rose to a record 568,000, the Commerce Department said August 24.
“The housing market is cooling in a very significant way,” Ofheo Director James Lockhart said in today’s report.
The last time the three-month appreciation rate was slower was the fourth quarter of 1999 when the prices grew 1.12%, according to the report.
Five states showed price declines during the second quarter, led by Michigan, down 0.72%, Massachusetts, falling 0.44%, and Maine, dropping 0.2%. The biggest gainers were New Mexico, up 4.22%, Oregon, rising 3.99%, and Idaho, increasing 3.78%. New York rose 0.9% and New Jersey gained 1.85%.
The housing sector may be weaker than the report indicates because the index excludes condominium and luxury home sales, an economist at JP Morgan Chase & Co. in New York, Robert Mellman, said.
The index measures changes of values for single-family properties that have loans bought or securitized by Fannie Mae or Freddie Mac. It excludes houses that have mortgages higher than $417,000, the maximum allowed in 2006 for loans bought by the government-chartered companies. “To the extent that pricing at the high end of the market and pricing for condos are especially weak, the Ofheo index may be overstating price gains,” Mr. Mellman said.
Sales of existing houses and condominiums declined to an annual rate of 6.69 million in the second quarter from a 7.19 million pace a year earlier, the National Association of Realtors said on August 15. The median price for a condominium dropped 0.3% to $225,800 from a year ago, the first decline on record, while the median for a single-family home rose 3.7% to $227,500, the slowest pace in six years.