Average U.S. home prices climbed 12.95 percent in 2005 despite rising mortgage rates in the second half of last year, the Office of Federal Housing Enterprise Oversight said on Wednesday.
“Despite recent indications that a slowdown may be forthcoming, house price appreciation during 2005 continued to hover at near-record levels,” OFHEO Chief Economist Patrick Lawler said in a statement.
Home values appreciated 2.86 percent during the fourth quarter from the third quarter of 2005, at an annualized rate of 11.4 percent.
Prices have posted double-digit increases on record home sales amid low interest rates and increased buying of second homes for vacation, retirement or investment.
“While (price) deceleration continues in some areas, appreciation generally is still extremely strong,” Lawler said. ”Mortgage rates climbed significantly during the second half of last year, but the effect of that increase on price appreciation so far appears to be limited.”
Last year’s rate of appreciation is about double the historical average of 6.4 percent, according to Bankrate Inc.
Recent reports on new and existing home sales, however, point to a long-anticipated slowing. The risk is that consumers will start feeling less confident when their home equity growth ebbs, and they curb the spending that has been a major economic driver.
For the first time since the third quarter of 2003, OFHEO said, one of the regions in its index showed a four-quarter price decline. Prices in Burlington, North Carolina, fell about 1 percent between the fourth quarter of 2004 and fourth quarter of 2005.
Still, four-quarter home price gains reached all-time highs in 26 areas such as Orlando-Kissimmee, Florida, and El Paso, Texas.
The housing market appears at a crossroads, with sales slowing but prices in many regions steadily rising.
“One way to interpret it is that sellers may have only been willing to sell if they got the prices they were expecting,” said Dean Maki, chief U.S. economist at Barclays Capital. ”Fewer got that, so there were less actual transactions as prices continued to rise.”
Price appreciation should moderate this year, particularly with the inventory of unsold homes heading north, he said.
Buying power seen shrinking
Sales of existing homes slid 2.8 percent in January to the slowest pace in almost two years and the fifth straight monthly drop, the National Association of Realtors said on Tuesday. Meantime, the number of houses on the market hit a high last seen in 1998.
As sales slow from all-time peaks, prices should tail off along with consumer confidence and spending, according to economists.
“Fixed mortgages rates are still historically attractive” at about 6-1/4 percent on 30-year loans, said Greg McBride, senior financial analyst at Bankrate Inc. “If rates moved higher suddenly, closer to 7 percent, that would be a severe drag on consumer buying power.”
Flatter national growth in the low single digits over the next couple of years will most crimp spending by recent buyers that have not yet built up much home equity, he said.
Analysts stress that while home prices may slump in some coastal areas that posted the greatest increases this decade, the expectation on a national level is for a leveling of prices rather than a decline.
Arizona posted the greatest gains by a wide margin last year. Prices jumped 34.9 percent during the period, more than 8 percentage points above the rate in second-placed Florida.
Price growth along the East Coast from Maryland to Florida was the highest since OFHEO launched the house price index in 1975. Prices in the region leaped 17.8 percent in the most recent four quarters, OFHEO said.
Home prices rose at the slowest rate in the East North Central division, which includes Michigan, Wisconsin, Illinois, Indiana and Ohio.
