The Office of Federal Housing Enterprise Oversight (OFHEO) released its quarterly report yesterday, showing that appreciation growth in the second quarter was up only 1.17% from the first quarter- the slowest gain since 1975. Arizona’s gain was 2.94%.
The OFHEO report is considered more reliable than either average or median home prices, as it measures same house sales. According to the James B. Lockhart, Director of the OFHEO:
These data are a strong indication that the housing market is cooling in a significant way. Indeed, the deceleration appears in almost every region of the country.
Also from the report:
Possible causes of the decrease in appreciation rates include higher interest rates, a drop in speculative activity, and rising inventories of homes. "The very high appreciation rates we’ve seen in recent years spurred increased construction," said OFHEO Chief Economist Patrick Lawler. "That coupled with slower sales has lead to higher invenories, and these inventories will continue to constrain future appreciation rates."
According to CNNMoney:
The release from OFHEO said that appreciation in many states declined dramatically and the largest effects were felt in states that had experienced the greatest increases in recent years, such as Arizona and Florida.
"Of the seven states that saw more than 80 percent appreciation over the 2001-2005 period," read the report, "only Rhode Island’s appreciation rate has increased over the last year. The remaining markets experienced rapid decelerations."
Being able to look at the percentage of appreciation is a useful tool for determining market trends. Here’s what it can show you, that just looking at the sales numbers can’t.
Let’s start by looking at a graph of the median sales price in the Phoenix metropolitan area since January 2004:
These numbers are used by some to try and demonstrate that prices have "stabilized." However, the median does not tell the whole story. The median, rather than being an average, is the number that is the "middle" of the range. Half the homes lie either above, or below this number. As first time buyers have dropped out, and as larger homes have been purchased by "move up" buyers, in some instances, square footage prices have come down. That’s why the median price is not as good an indicator as same house sales.
The median however, can be useful to some degree. This chart shows the percent change in median prices for the same time period:
Sales levels typically decline after Labor Day, and the Valley continues to experience as inventory remains at record high levels. It seems unlikely that appreciation rates will recover anytime in the near future.