Washington, DC, Jun. 2--Home prices climbed, but at a slower rate in the first three months of 2004, after the year-end rush to buy homes on fears of rising mortgage rates tapered off, a government agency said on Tuesday.
The 7.71% first-quarter increase was below an upwardly revised 8.13% year-on-year increase for the fourth quarter of 2003, the Office of Federal Housing Enterprise Oversight said.
"That sense of urgency apparently diminished last quarter after rates stabilized. It will be interesting to see what the effects of more recent interest rate increases are in the future," Patrick Lawler, OFHEO's chief economist said, in a statement.
While economists consider the housing market solid, they say the recent rise in mortgage rates should cool the sizzling pace of home prices and sales in the second half of the year.
"They ought to show a slowdown the rest of 2004," said Richard DeKaser, chief economist at National City Corp.
Interest rates on 30-year fixed-rates mortgages averaged 6.32% last week, up from prior week's 6.30%. The average 30-year rate has risen nearly 1% since the end of March, according to Freddie Mac.
Home appreciation would increase 3.84% for 2004, if it continues at its first-quarter pace, the government agency, which regulates Fannie Mae and Freddie Mac, said.
OFHEO tracks home prices based on mortgage data from the two mortgage finance giants.
Annualized home appreciation during the first quarter slowed sharply from the 14.85% rise for the fourth quarter. The first-quarter annualized increase was the smallest since 3.23% for the second quarter of 1998.
"This moderation in growth of house prices is welcome because continued price jumps like those of the fourth quarter last year would raise the potential for declines later on," Lawler said.
Economists like DeKaser, in agreement with that assessment, noted that strong price growth an in an environment of rising interest rates could result in price correction.
DeKaser said if home appreciation continues at the first-quarter pace as mortgage rates head higher, hot markets like California, New York and Massachusetts could overheat and become vulnerable to price drops.
"If we continue to see 7% increases, this would concern me. The risk of price correction could be significant," DeKaser said.
Between the fourth-quarter and first-quarter, home prices on average grew a slim 0.96%, the smallest quarterly increase since the 0.81% rise for the second quarter of 1998, according to OFHEO.
Home prices in Hawaii, Nevada, Rhode Island, the District of Columbia and California increased the most during the past 12 months. Average appreciation in those five markets was double the national average.
Home price increases were the smallest in Utah, Texas, Indiana, Colorado and Alabama during the same period, OFHEO said. Average home appreciation in Utah was a 1.95%, the lowest among all 50 states.
For the first quarter, average home values in five states, Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska, fell from fourth-quarter levels. In the fourth quarter, no states experienced price decreases from the third-quarter 2003, it said.
Among the 220 metropolitan areas tracked by OFHEO, Fresno, California experienced the greatest home price growth, up 21.4% for the first quarter from a year earlier.
At the other end of the spectrum, average home prices in the Austin-San Marcos area in Texas rose 0.47% in the first quarter from year-ago level.
