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First quarter 2006 reports that home prices were moving up almost as fast as they were in the previous quarter, may be a lagging indicator that belies the housing market's true direction today in the second quarter.

However, federal data on home prices are in line with another federal report that says perhaps it is the bubble talk, not home prices, that is over inflated.

U.S. home prices moved ahead nationwide on the average 12.5 percent in the first quarter this year, compared to the same quarter last year.

The increase was only slightly off the 12.95 percent increase originally posted during the last quarter of 2005. That figure since has been revised upwards to 13.33 percent, according to the latest report from the Office of Federal Housing Enterprise Oversight's (OFHEO) Home Price Index.

OFHEO acting director James Lockhart, says the data suggests, that while on average home prices are growing at a healthier rate than forecast by some pundits, the market is not without its soft spots.

"They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most," Lockhart said, echoing the latest trend in housing market forecasts that call for localized housing bubble deflation rather than a nationwide bust.

"Assessing High House Prices, Bubbles, Fundamentals and Misperceptions" by Charles Himmelberg, Christopher Mayer and Todd Sinai with the Federal Reserve Bank of New York, concludes that trying to accurately assess the national housing market is like comparing apples and oranges.

"Constant-quality data on house prices and rents exist for less than three decades, cover only two house price booms, and are not comparable across different cities. Hence, it is impossible to state definitively whether or not a housing bubble exists. However, we can say that most housing markets did not look much more expensive in 2004 than they looked over the past 10 years, and in most major cities our valuation measures are nowhere near their historic highs," the report concludes.

Marching out reasons most national bubble theory is little more than babble, the report says national-level data doesn't serve the house price dynamics on the local level where the action is.

Even comparing cities doesn't offer accurate postulating because price-to-income and price-to-rent ratios vary widely from city to city.

The report also says, on the local level, to determine if home prices are reasonably priced relevant data comes not from the total cost of a home, but the annual or monthly cost of ownership. That data is largely guesstimates about changes in long-term interest rates, inflation, home price appreciation, taxes and other costs that are tough to pin down.

Those housing market variables also impact costs differently from city to city. For example, where the housing supply is static, prices remain higher relative to rents and are more sensitive to changes in interest rates.

"Our evidence does not suggest that house prices cannot fall in the future if fundamental factors change. An unexpected rise in real interest rates that raises housing costs, or a negative shock to a local economy, would lower housing demand, slowing the growth of house prices, and possibly even leading to a house price decline. However, this fact does not mean that today houses are systematically mispriced [sic]" the report deduces.

OFHEO's Home Price Index seems to bear out the report's findings revealing a nation of many robust housing markets -- and some not so -- reacting differently to local and national economies.

  • Over the past year, among states, Arizona revealed the greatest home price appreciation rate, 32.8 percent, while, at 2.86 percent, Michigan had the smallest rate of home price appreciation.

    Only 9 states had price appreciation rates lower than 6 percent for the year, considered a decent return on any investment.

    For the first time since the fourth quarter of 2002, negative quarterly appreciation rates (from the fourth quarter 2005 to the first quarter 2006) were observed for some states, Iowa at a negative 0.41 and South Dakota down 0.13 percent.

  • With rankings based on one-year appreciation rates for 275 metropolitan statistical areas (MSAs) with at least 15,000 transactions over the last 10 years, the top five appreciating MSAs were St. George, UT (38.40 percent); Naples-Marco Island, FL (37.73 percent); Cape Coral-Fort Myers, FL (36.90); Phoenix-Mesa-Scottdale, AZ (36.52 percent); and Lakeland, FL (35.6 percent).

    Out of the 20 MSAs with the largest percentage house price gains in the past year, 10 were in Florida, four in Arizona, two each in California, Idaho and Utah (one shared with Arizona) and one in Oregon.

    At the other end of the scale were Lafayette, IN (1.22 percent); Canton-Massillon, OH (1.21 percent); Erie, PA 273 (1.02 percent); Anderson, IN (0.84 percent); and Saginaw-Saginaw Township North, MI (0.14 percent). The lower end was dominated by towns in the Midwest, Northwest and the Carolinas.

  • Among cities with smaller numbers of transactions, the three with the fastest annual rate of appreciation was Ocala, FL (prices up 30.44 percent); Yuma, AZ (29.78 percent); and Sebastian-Vero Beach, FL (26.59 percent). At the other end of the appreciation scale for cities with smaller numbers of transactions were Ames, IA (prices up 1.86 percent); Brownsville-Harlingen, TX (up 0.41 percent) and Sandusky, OH (down 1.57 percent).
  • Hurricane Katrina area towns revealed unexpectedly robust appreciation rates including 15.88 percent in Gulfport-Biloxi, MS; 14.61 percent in Mobile, AL and 14.32 percent in New Orleans as those moving back in to buy see bargains in tear downs and raw land.
  • Region-wide home prices rose fastest, by 18.06 percent in the Pacific Census Division, followed by 17.8 percent in the Mountain Division, and 17.23 percent in the South Atlantic Region.

    Slower price growth was clustered in and around the Heartland.

    Home prices in the Great Lakes' East North Central Division grew by 5.56 percent. One region over to the west, in the West North Central Division, home prices grew by 6.21 percent. Adjacent south of that division, the West South Central Division clocked a 7.69 percent rate of home price appreciation.

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