Julio E. Sune Jr. (FL)
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Posted on Sun, Jun. 08, 2003
KENNETH HARNEY, Washington Report
Home appreciation slowing but far from stalled
The great American home appreciation money machine is showing some hints of slowing down, but for most consumers around the country, a house is still by far their best-performing asset.
The federal government's latest quarterly study of home price appreciation shows that the average American house grew in resale value by 6.48 percent from the first quarter of 2002 through the first quarter of 2003.
Houses in six states (including Florida) and the District of Columbia continued to appreciate at recession-defying double-digit rates. More than 40 major metropolitan areas reported double-digit year-to-year jumps in values -- a performance that is considered stunning by mortgage industry economists who predicted much lower rates in a weakening domestic economy.
Hottest-growth states in the latest study by the Office of Federal Housing Enterprise Oversight (OFHEO): Rhode Island, where the average home gained 14.6 percent in value from the first quarter of 2002 to the same period this year; the District of Columbia (counted as a state in the study), where values were up 12.3 percent; California (up an average 11.23 percent). Next were New Jersey (10.55 percent), Florida (10.18 percent) and New York (10.09 percent.)
Some individual metropolitan housing markets showed gains reminiscent of the go-go late-1990s -- as high as 15 percent in San Diego and Nassau-Suffolk on New York's Long Island. Four Florida metropolitan areas -- Fort Pierce/Port St. Lucie, Miami, Fort Lauderdale and West Palm Beach -- were among the 20 areas showing the highest appreciation rates.
(The full OFHEO Housing Price Index report, with data for 220 metropolitan areas, can be viewed online at www.ofheo.gov.)
The vast majority of houses nationwide gained in value at more modest rates -- and the most recent national annualized quarterly rate was just 3.8 percent, down from 5.2 percent the previous quarter. But the full year 6.48 percent average impressed housing economists, who had assumed rising unemployment and overseas shocks would put a brake on appreciation rates in most places.
''We had projected [an average] 4 percent for existing [resale] houses,'' said Douglas Duncan, chief economist of the Mortgage Bankers Association of America.
Undoubtedly contributing to the better-than-anticipated performance: today's 45-year lows in mortgage rates. With 30-year loans close to 5 percent and 15-year mortgages in the low 4 percent range, ''there is no question,'' said Duncan, that there is a connection between the cost of borrowing and current rates of housing inflation.
Bargain-rate mortgages allow buyers to afford a costlier home, and allow sellers to ask -- and get -- higher prices. For example, a consumer with roughly $1,320 a month to spend on principal and interest can afford a $200,000 fixed-rate 30-year mortgage at 7 percent, a $220,000 mortgage at 6 percent and a $250,000 loan at 5 percent. That 25 percent jump in affordable mortgage amount produced by just a 2 percentage point drop in the cost of money gets factored into a home's price by the alchemy of the free market.
Short-term gains in value may be impressive, but the year-in, year-out performances of homes has caught the eye of another top mortgage economist, Frank Nothaft of Freddie Mac.
Over the past five decades, he says, the average American single-family house has appreciated at between 4 percent and 5 percent annually. That includes national recessionary downturns and severe regional declines -- the Southwest in the 1980s energy bust and Southern California in the early 1990s -- where home values deflated for a few yeas only to bounce back later and recoup those losses.
The latest OFHEO study shows that the average American home grew in value by 38 percent over the past five years -- slightly above Nothaft's historical norms. On a state by state basis, however, houses have often far outdistanced the national average gains.
The average Massachusetts home appreciated by 73 percent in the last 60 months, according to OFHEO. The average California home is up 68 percent during the same period. The average home in the District of Columbia -- tops in the country -- is up by 78 percent over five years. The average Florida home appreciated 45 percent in the same period.
Doom and gloom ''bubble'' theorists, who predict a sharp downturn in housing values after such effervescent inflationary bursts, won't find much to support their case in the latest OFHEO statistics. For example, two of the highest-cost, highest-inflation markets of the late 1990s -- San Francisco and San Jose -- had been projected as home-value disaster areas in the wake of local economic reverses. But both are still chugging away, turning in annual gains.
In metropolitan San Francisco, where a starter home can set you back $600,000 or more, houses appreciated at 5.53 percent during the last year. In San Jose -- epicenter of the dot-com implosion -- the average gain was 4.52 percent.
None of this is to suggest that the potential for housing deflation has been wrung out of the American economy, especially in markets where unemployment takes a big jump. Low interest rates can't prop up home values when breadwinners aren't bringing home the bread. But in most markets, as the latest OFHEO data demonstrate, that's simply not happening.
Kenneth Harney, president of a Maryland consulting and publishing firm, is executive director of the National Real Estate Development Center. E-mail: kharney@winstarmail.com
:yellowblack:
KENNETH HARNEY, Washington Report
Home appreciation slowing but far from stalled
The great American home appreciation money machine is showing some hints of slowing down, but for most consumers around the country, a house is still by far their best-performing asset.
The federal government's latest quarterly study of home price appreciation shows that the average American house grew in resale value by 6.48 percent from the first quarter of 2002 through the first quarter of 2003.
Houses in six states (including Florida) and the District of Columbia continued to appreciate at recession-defying double-digit rates. More than 40 major metropolitan areas reported double-digit year-to-year jumps in values -- a performance that is considered stunning by mortgage industry economists who predicted much lower rates in a weakening domestic economy.
Hottest-growth states in the latest study by the Office of Federal Housing Enterprise Oversight (OFHEO): Rhode Island, where the average home gained 14.6 percent in value from the first quarter of 2002 to the same period this year; the District of Columbia (counted as a state in the study), where values were up 12.3 percent; California (up an average 11.23 percent). Next were New Jersey (10.55 percent), Florida (10.18 percent) and New York (10.09 percent.)
Some individual metropolitan housing markets showed gains reminiscent of the go-go late-1990s -- as high as 15 percent in San Diego and Nassau-Suffolk on New York's Long Island. Four Florida metropolitan areas -- Fort Pierce/Port St. Lucie, Miami, Fort Lauderdale and West Palm Beach -- were among the 20 areas showing the highest appreciation rates.
(The full OFHEO Housing Price Index report, with data for 220 metropolitan areas, can be viewed online at www.ofheo.gov.)
The vast majority of houses nationwide gained in value at more modest rates -- and the most recent national annualized quarterly rate was just 3.8 percent, down from 5.2 percent the previous quarter. But the full year 6.48 percent average impressed housing economists, who had assumed rising unemployment and overseas shocks would put a brake on appreciation rates in most places.
''We had projected [an average] 4 percent for existing [resale] houses,'' said Douglas Duncan, chief economist of the Mortgage Bankers Association of America.
Undoubtedly contributing to the better-than-anticipated performance: today's 45-year lows in mortgage rates. With 30-year loans close to 5 percent and 15-year mortgages in the low 4 percent range, ''there is no question,'' said Duncan, that there is a connection between the cost of borrowing and current rates of housing inflation.
Bargain-rate mortgages allow buyers to afford a costlier home, and allow sellers to ask -- and get -- higher prices. For example, a consumer with roughly $1,320 a month to spend on principal and interest can afford a $200,000 fixed-rate 30-year mortgage at 7 percent, a $220,000 mortgage at 6 percent and a $250,000 loan at 5 percent. That 25 percent jump in affordable mortgage amount produced by just a 2 percentage point drop in the cost of money gets factored into a home's price by the alchemy of the free market.
Short-term gains in value may be impressive, but the year-in, year-out performances of homes has caught the eye of another top mortgage economist, Frank Nothaft of Freddie Mac.
Over the past five decades, he says, the average American single-family house has appreciated at between 4 percent and 5 percent annually. That includes national recessionary downturns and severe regional declines -- the Southwest in the 1980s energy bust and Southern California in the early 1990s -- where home values deflated for a few yeas only to bounce back later and recoup those losses.
The latest OFHEO study shows that the average American home grew in value by 38 percent over the past five years -- slightly above Nothaft's historical norms. On a state by state basis, however, houses have often far outdistanced the national average gains.
The average Massachusetts home appreciated by 73 percent in the last 60 months, according to OFHEO. The average California home is up 68 percent during the same period. The average home in the District of Columbia -- tops in the country -- is up by 78 percent over five years. The average Florida home appreciated 45 percent in the same period.
Doom and gloom ''bubble'' theorists, who predict a sharp downturn in housing values after such effervescent inflationary bursts, won't find much to support their case in the latest OFHEO statistics. For example, two of the highest-cost, highest-inflation markets of the late 1990s -- San Francisco and San Jose -- had been projected as home-value disaster areas in the wake of local economic reverses. But both are still chugging away, turning in annual gains.
In metropolitan San Francisco, where a starter home can set you back $600,000 or more, houses appreciated at 5.53 percent during the last year. In San Jose -- epicenter of the dot-com implosion -- the average gain was 4.52 percent.
None of this is to suggest that the potential for housing deflation has been wrung out of the American economy, especially in markets where unemployment takes a big jump. Low interest rates can't prop up home values when breadwinners aren't bringing home the bread. But in most markets, as the latest OFHEO data demonstrate, that's simply not happening.
Kenneth Harney, president of a Maryland consulting and publishing firm, is executive director of the National Real Estate Development Center. E-mail: kharney@winstarmail.com
:yellowblack:
