March 1, 2007 - WASHINGTON, DC – The rate of home price appreciation in the U.S. remained steady in the fourth quarter of 2006, extending a general trend of deceleration begun earlier in the year.
Home prices, based on repeat sales and refinancings, were 1.1 percent higher in the fourth quarter than they were in the third quarter of 2006. This is slightly above the revised growth estimate of 1.0 percent from the second to the third quarter. Prices in the fourth quarter of 2006 were 5.9 percent higher than they were in the same quarter in 2005.
Price appreciation in 2006 was substantially smaller than the tremendous price gains of recent years, which ranged from 7.4 percent in 2002 to 13.2 percent in 2005. The figures were released today by OFHEO Director James B. Lockhart, as part of the House Price Index (HPI), a quarterly report analyzing housing price appreciation trends.
“These data show that, on the whole, prices are still rising, albeit at a much slower pace,” said Lockhart. “This suggests that house price appreciation is, for now, more in line with historical norms.”
House prices grew faster over the past year than did prices of non-housing goods and services reflected in the Consumer Price Index. House prices rose 5.9 percent, while prices of other goods and services, excluding shelter, rose 0.9 percent.
“The continuing strength in the economy and decreasing interest rates for borrowers prevented a harder landing in housing markets during the second half of last year,” said OFHEO Chief Economist Patrick Lawler. “Last quarter, though sharper drops occurred locally, no state had average price declines of as much as one percent,” Lawler said.
Click below for charts and links to the full report . . .
Here's an example of just one of the many charts in the OFHEO's complete report: Click here to download. You can click on the chart to view the larger image.
The Market Slowdown and Home Prices in the Suburbs and “Exurbs”
When faced with high home prices in America’s largest cities, many potential homebuyers seek affordable housing options in the suburbs. Prices in the suburbs are generally lower for homes of similar quality and, as the distance to the center city increases, prices often fall. In some cases, lower-income buyers seek homes in particularly distant suburbs, sometime described as the “exurbs,” to find home prices that match their budgets.
In the latest housing boom, as the affordability concerns increased in many cities across the U.S., many homebuyers sought houses in increasingly distant suburbs. While it has been widely reported that sales and building activity was significant in such communities during the boom, an important empirical question is: “How robust was suburban price appreciation relative to price appreciation in the inner city and close-in suburbs?”
If appreciation in the distant suburbs was as great as it was in close-in communities, then the housing boom had a particularly intense impact on affordability because it closed off places new homeowners could traditionally look for reasonable housing solutions.
This article analyzes relative suburban and urban price appreciation during the housing boom for the eight most populated U.S. metropolitan areas: New York, Los Angeles, Chicago, Philadelphia, Dallas, Miami, Washington, D.C., and Houston. It also studies relative price trends since the housing market deceleration began a year ago.
If increases in home inventories have been particularly dramatic in the most distant communities, as some have suggested, then home price data should reveal relative price weakness in the suburbs and exurbs.
Houses are grouped into the following distance intervals:
- 10-20 Miles (“Inner Suburbs”),
- 20-30 Miles (“Intermediate Suburbs”),
- 30-40 Miles (“Distant Suburbs”),
- and 40-60 Miles (“Exurbs”).
For the eight large metropolitan areas, Figure 1 reports average annual appreciation rates for the early part of the decade: the fourth quarter of 2000 through the fourth quarter of 2005.
Each line represents appreciation for different parts of the same city, with appreciation in the urban core shown on the left and growth rates for increasingly distant suburbs shown at the right. Average annual appreciation in the Chicago city center was about 10 percent, for example, and declined for more distant suburbs. Average annual appreciation was about 7 percent for the most distant suburbs and exurbs.
The most striking feature of Figure 1 is the extremely close relationship between appreciation in the various distance intervals. Although appreciation rates were generally lower for more distant suburbs, the difference between price growth in the city center and outlying areas was minimal in almost every city.
In Washington, D.C. and Los Angeles, where appreciation in the close-in areas averaged between 17 and 20 percent per year, price growth in the distant suburbs and exurbs trailed urban rates by only about 3 percentage points. The difference in appreciation rates was negligible for New York and Miami. In Dallas and Houston, where the effects of the housing boom were generally limited, appreciation rates were almost identical for the different distance intervals.
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