Home prices rise sharply during second quarter

“The steady decline of fixed mortgage rates during the second quarter helped to propel home sales higher and drive up house prices,” said Frank Nothaft, Freddie Mac vice president and chief economist, in a news release. Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders.

The Conventional Mortgage Home Price Index continues to show strong growth primarily along the coasts – areas where populations are growing rapidly, job growth is strong and land scarcity is pushing up the cost of housing.

“Home sales and housing starts are still expected to set a new record this year,” Nothaft said. “The devastating effects of Hurricane Katrina will likely drive up costs of construction materials once the rebuilding effort gets under way and may slow deliveries of new homes in other areas of the country as resources are reallocated to Louisiana, Mississippi and other areas affected by the storm.”

Nationally, home values increased 13.2 percent on an annual basis, from the second quarter of 2004 through the second quarter of 2005.

The latest release of the index is the first to use the new metro area definitions based on the 2000 Census and expands index coverage to 379 metropolitan statistical areas.

“We can now see more clearly the impact of localized job losses or job gains on smaller communities with the wider coverage,” said Amy Crews Cutts, Freddie Mac deputy chief economist.

She noted that most of the job losses have been in the manufacturing sectors, as job gains have consistently occurred in construction. Home price trends, Cutts said, have mirrored employment trends. Most of the job losses have come from the manufacturing sector while employment gains have occurred consistently in construction, and home price trends have mirrored the employment trends. Four metro areas show losses in home values year over year, but no state is showing quarterly or annual decreases in average home values.

In the West North Central Region, which includes Missouri, the index showed that home prices increased 2.5 percent in the second quarter of 2005.

Jointly developed by Freddie Mac and Fannie Mae, and first published by Freddie Mac starting in 1994, the index features indexes for the nine Census divisions as well as a national index.

Unlike other home price indexes based on mean or median values of homes sold during a given period, the Conventional Mortgage Home Price Index is compiled using regression techniques, from observations of actual sales prices or appraised values of the same homes over time.