Quarterly Home Prices Rise Fastest in 25 Years
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American home prices increased at the fastest pace in 25 years during the third quarter, led by Nevada and California, as the economy improved and low mortgage rates made financing more affordable.
Prices across the nation rose an average of 13% from a year earlier, surpassing the second quarter’s 9.8% pace, according to a report from the Office of Federal Housing Enterprise Oversight, or Ofheo. It was the biggest increase since 13.1% in 1979’s third quarter.
Home prices rose as a stronger job market coupled with low mortgage rates made it possible for buyers to bid more for a property, said Joe Carson, director of global economic research at Alliance Capital Management Holding LP. Rates will probably rise to an average of 6.01% in 2005, up from 5.85% this year, Fannie Mae, the largest American mortgage buyer, forecast.
“You don’t kill a housing cycle with job creation, low rates, and very favorable tax laws,” Mr. Carson said. “Maybe the fastest rate of price appreciation now is behind us, but it’s likely to remain above people’s expectations because it will be slowing from this level.”
Home-price appreciation probably will slow to 8% in 2005 from 9.7% this year, according to Freddie Mac, the second-largest mortgage buyer. During the last 20 years, the average American price gain has been 4.5%, said an economist at the National Association of Realtors, Lawrence Yun. Eighteen regions had above-average increases in the third quarter, when economic growth accelerated to a 3.9% annual pace from 3.3% in the previous three months.
Prices in Nevada surged 36%, driven by the Las Vegas-Paradise area’s 42% gain. Hawaii had growth of 28%, California saw 27%, and Washington D.C. recorded 24%. The slowest-growth states were Texas, with 3.8%; Utah, at 3.9%; Indiana, with 4%, and Mississippi, at 4.5%, according to the report.
A drop in refinancing may have helped to raise prices because repeat appraisals tend to underestimate a property’s gain in value, Ofheo chief economist Patrick Lawler said. Refinancing volume fell to $226 billion in the period, the lowest in more than three years, the Mortgage Bankers Association said.
The study, known as the House Price Index, excludes properties with mortgages higher than $333,700, the maximum amount allowed in 2004 for loans bought by government-charted Fannie Mae and Freddie Mac.