RATE OF HOME-PRICE INCREASES FALLS TO SLOWEST PACE IN EIGHT YEARS

U.S. home prices grew at an annual rate of 3.5% in the third quarter, the slowest rate of price appreciation seen in eight years, the Office of Federal Housing Enterprise Oversight reported Thursday.

Including the third quarter, home prices are up 7.7% in the past year, the slowest in three years. A year ago, prices were rising at a 13.4% pace.

By comparison, home prices rose at an annual rate of 5.1% during the second quarter, with the year-over-year increase through June pegged at 10.3%.

Prices had risen by 57% in the previous five years.

"The slowdown is not unexpected," said James Lockhart, director of OFHEO, in a release. "There are still some areas where appreciation rates remain very high, but now they are the exception rather than the norm." Read the full government report.

Still, home prices were still growing much faster than inflation, which fell at an annual rate of 0.2% during the third quarter.

"It is nice to see ... that there are plenty of pockets of strength out there to offset the places where prices are cooling/falling, since it's only the negative areas that get the media attention," wrote Stephen Stanley, chief economist for RBS Greenwich Capital, in an email.

The OFHEO index is considered the best gauge of home values, because it doesn't depend on the mix of houses sold as do reports on the median prices for new and existing homes. It compares apples with apples by tracking mortgages written for the same houses over time.

A separate index based only on home sales rather than also including mortgages for refinancing showed home prices rose 6% in the past year.

Prices fell 0.6% in Michigan over the past year, the first annual decline in any state in more than six years.

And prices fell from the second quarter to the third quarter in five states: New York, Rhode Island, Michigan, New Hampshire and Massachusetts.

Idaho showed the fastest year-over-year growth at 17.5%. Prices were also growing at rates of more than 15% in Utah, Oregon, Arizona, Washington and Florida.

The Rocky Mountain region was the hottest regional market in the third quarter, with prices rising at a 6.8% annual rate. Prices rose just 0.3% annualized in New England.

Prices fell on a quarter-to-quarter basis in 15 cities in California, including San Francisco, San Diego, Oakland and Sacramento. For the state as a whole, price gains slowed from 10.2% in the past year to annualized growth of about 2.5% in the third quarter.

Ten cities recorded price gains of more than 20% in the past year. Up more than 30%, Bend, Ore., showed the largest price gains, with Boise, Idaho; Gulfport, Miss.; Miami, Fla.; and Wenatchee, Wash., rounding out the top five.

The biggest year-over-year declines were seen in Anderson, Ind.; Ann Arbor, Mich.; Springfield, Ohio; Holland, Mich.; and Greeley, Colo. In all, 18 cities recorded price declines over the past year.

In just the third quarter, 67 of 275 cities suffered falling prices.

Among the top 15 cities in population, three saw prices falling in the third quarter: Detroit, Boston and San Francisco. Among large cities, the largest price gains in the quarter were seen in Miami and Seattle, each up about 15.5% annualized.

-- December 04, 2006

By Rex Nutting

From MarketWatch