HOME VALUE GROWTH REMAINS VIGOROUS GOING INTO MIDDLE OF YEAR

All Regions Continue To Show Gains In First Quarter

McLean, VA – Freddie Mac announced today that its quarterly Conventional Mortgage Home Price Index (CMHPI) found that home values rose 8.5 percent, on an annual basis, from the first quarter of 2003 through the first quarter of 2004, up from the prior year (first quarter of 2002 to first quarter of 2003) when the growth rate was 7.2 percent.

"The first quarter of the year was great for the housing market," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "Low and declining mortgage rates over the quarter that bottomed out in March at 5.4 percent for 30-year, fixed rate mortgages, pushed homes sales to a healthy 7.37 million units (annualized rate) and this strong housing demand helped keep house price appreciation well ahead of overall inflation."

The quarterly growth rates show a significant decrease from the previous quarter values. Nationally, home values increased by an annualized rate of 5.6 percent in the first quarter of 2004. The fourth quarter 2003 annualized growth rate was revised upward to 17.9 percent.

"The quarterly growth rates in the first quarter are in line with the general trends over the past two years with the exception of the fourth quarter of 2003, which is very much an anomaly," said Cutts. "Quarterly data generally are more volatile, but the fourth quarter values seem to be very affected by biases created by the large volume of refinance activity in 2002 and earlier in the year. Normally we expect home prices nationally to grow about 2 to 3 percentage points faster than overall inflation due to home improvements and competition for land. The first quarter 2004 values are following this general pattern."

Once again, the Pacific states continued to lead the nation in annual house-price appreciation, growing at an astonishing annual rate of 14.3 percent for the year. The Middle Atlantic states were, again, second in growth with an annual appreciation rate of 10.9 percent. The New England states trailed the Middle Atlantic slightly with an annual home-price growth rate of 10.7 percent. After New England came the South Atlantic states, registering a gain of 9.8 percent, followed by the West North Central states with an increase of 6.6 percent.

The Mountain states showed a rise in home values of 5.9 percent, while the East North Central states experienced a growth rate of 5.4 percent in home values. Finally, the East South Central states posted an expansion of 4.3 percent and the West South Central states ended the list for the fourth consecutive quarter with an annual growth rate of 3.8 percent for the first quarter of 2004.

"The first quarter of 2004 is the 30th quarter in which every region of the country has seen positive changes in home prices," said Amy Crews Cutts. "Strong jobs growth like we saw in March and April should keep housing demand robust even as mortgage interest rates rise. Near record new home construction activity won't quite keep up with housing demand, so annual national home price appreciation should be quite vigorous, between 6 to 6.5 percent for 2004."

"The fall-off in refinance activity will reduce the amount of equity cashed out of homes in 2004 to around $114 billion, down from $139 billion in 2003. But consumers should have plenty of income growth to keep spending up, and continued appreciation in home values should further improve household balance sheets."

"In 2004, we expect the refinance share to gradually decline from a high of 59 percent of applications during the first quarter to 34 percent in the fourth quarter, and average 43 percent for the year. Because of lesser refinance volume, single-family mortgage originations will drop by about one-third, from $3.7 trillion in 2003 to $2.4 trillion in 2004," added Cutts. "Purchases of single-family houses hit a record 7.2 million sales in 2003, and we expect a new record of 7.3 million new and existing sales to be reached in 2004. Mortgage originations from home purchases will also set a new record in 2004 due to the strong sales numbers and rising home prices."

The Conventional Mortgage Home Price Index shows the following regional performances:

• Pacific Division (AK, CA, HI, OR, WA): increased 2.9 percent (12.2 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 14.3 percent, and during the last five years, home values have increased 70.0 percent.
• Middle Atlantic Division (NJ, NY, PA): increased 0.6 percent (2.5 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 10.9 percent, and during the last five years, home values increased 57.8 percent.
• New England Division (CT, MA, ME, NH, RI, VT): increased 1.4 percent (5.6 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 10.7 percent, and during the last five years, home values increased 72.1 percent.
• South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 2.0 percent (8.3 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 9.8 percent, and during the last five years, home values increased 44.6 percent
• West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 0.4 percent (1.6 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 6.6 percent, and during the last five years, home values increased 39.0 percent.
• Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 1.2 percent (4.9 percent, annualized) in the first quarter of 2004. In the last 12 months, home values increased 5.9 percent, and during the last five years, home values increased 31.0 percent.
• East North Central Division (IL, IN, MI, OH, WI): increased 0.7 percent (2.7 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 5.4 percent, and during the last five years, home values increased 29.7 percent.
• East South Central Division (AL, KY, MS, TN): increased 0.7 percent (3.0 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 4.3 percent, and during the last five years, home values increased 22.4 percent.
• West South Central Division (AR, LA, OK, TX): increased 0.6 percent (2.4 percent, annualized) in the first quarter of 2004. Over the last 12 months, home values increased 3.8 percent, and during the last five years, home values increased 26.9 percent.

Jointly developed by Freddie Mac and Fannie Mae, the Conventional Mortgage Home Price Index features indexes for the nine Census divisions as well as a national index. The national index is the average of the nine divisional indexes weighted by the distribution of detached, one-unit, single-family structures in each Census division.

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 constructed, using regression techniques, from observations of actual sales prices or appraised values of the same homes over time. The street addresses of properties that serve as collateral for mortgages funded by the two secondary mortgage market firms are first processed using software certified by the United States Postal Service to create a uniform address format and are then matched to identify consecutive transactions on the same property. There are currently 27.5 million records in the repeat-transactions database used to construct the nine division indexes – this database includes transactions on properties serving as collateral on loans originated through the first quarter of 2004 and purchased by Freddie Mac and Fannie Mae by April 30, 2004.

Freddie Mac releases the Conventional Mortgage Home Price Index each quarter. Index values and growth rates for the nation as a whole as well as for the nine Census divisions, the 50 states and the District of Columbia, and 163 metropolitan statistical areas (MSAs) can be found on Freddie Mac's web site.

Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970 to create a continuous flow of funds to mortgage lenders. By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities, Freddie Mac sustains a stable mortgage credit system and reduces the mortgage rates paid by homebuyers. Over the years, Freddie Mac has opened doors for one in six homebuyers in America.

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