National Home Values Fall in Third Quarter

For Immediate Release

December 04, 2007
Contact: corprel@freddiemac.com
or (703) 903-3933

Largest Quarterly Drop in 25 Years

McLean, VA – Freddie Mac (NYSE: FRE) announced today that its Conventional Mortgage Home Price Index (CMHPI) Classic Series registered a 1.3 percent drop in U.S. home values during the third quarter of 2007 on an annualized basis, down from a revised second quarter 2007 annualized rate of 0.5 percent and the largest decline in 25 years. Over the year ending with the third quarter, home values appreciated 1.9 percent on average, down from the 7.8 percent growth over the same period a year earlier.

The CMHPI Classic Series includes data from both home purchase transactions and mortgage refinancings based on appraisals. Freddie Mac also produces a CMHPI Purchase-Only Series, which indicates that home sales prices fell 2.2 percent nationally during the third quarter on an annualized basis; the last time a larger drop was recorded was during the fourth quarter of 1990. Over the four quarters ending in September 2007, home sales prices rose an average of 1.6 percent in the CMHPI Purchase-Only Series.

"The number of home sales fell during the third quarter, and the inventory of existing single-family homes for sale rose to 10.5 months by October, the highest level since 1985. Further, lenders have tightened underwriting standards, and the turbulence in the capital markets led to a spike in the cost of jumbo loans, further adding to the challenge of buying homes. For example, jumbo fixed-rate loans cost nearly a full percentage point more than conforming fixed-rate loans in August and September," said Frank Nothaft, Freddie Mac vice president and chief economist. "Reporting on their survey of commercial bank lending practices, the Federal Reserve noted that banks had tightened their lending standards on prime, nontraditional, and subprime residential mortgages between July and October."

"The decline in home values occurred broadly across the U.S. The CMHPI Purchase-Only measure found prices falling in seven of nine regions and in 25 states during the third quarter. The Pacific region fell the most at a 5.8 percent annualized rate. In contrast, a robust energy industry in the oil-patch states fueled a 4.9 percent annualized gain in house prices in the West South Central region," added Amy Crews Cutts, Freddie Mac's Deputy Chief Economist.

Based on the CMHPI-Classic Series, the West South Central states led growth in home values with an annualized appreciation rate of 4.8 percent during the third quarter, followed by the East South Central states, which showed a smaller gain of 3.4 percent. The Mountain states came next, with a growth rate of 1.9 percent. The Middle Atlantic states experienced a negative price growth of 0.5 percent. Homes in the West North Central region saw a decline in average values of 1.2 percent, followed by a 2.3 percent decline in the South Atlantic regions and a drop of 3.4 percent in both the New England and East North Central states. States in the Pacific region saw home values slip 3.5 percent.

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

West South Central Division (AR, LA, OK, TX): increased 1.2 percent (4.8 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values increased 5.6 percent, and during the last five years, home values increased 30.9 percent.
East South Central Division (AL, KY, MS, TN): increased 0.8 percent (3.4 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values increased 5.2 percent, and during the last five years, home values increased 31.8 percent.
Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 0.5 percent (1.9 percent, annualized) in the third quarter of 2007. In the last 12 months, home values increased 4.3 percent; during the last five years, home values increased 54.2 percent.
Middle Atlantic Division (NJ, NY, PA): decreased 0.1 percent (-0.5 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values increased 2.2 percent, and during the last five years, home values increased 59.5 percent.
West North Central Division (IA, KS, MN, MO, ND, NE, SD): decreased 0.3 percent (-1.2 percent, annualized) in the second quarter of 2007. Over the last 12 months, home values increased 1.8 percent; over the last five years, home values increased 28.2 percent.
South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): decreased 0.6 percent (-2.3 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values increased 2.1 percent, and during the last five years, home values increased 59.9 percent.
New England Division (CT, MA, ME, NH, RI, VT): decreased 0.9 percent (-3.4 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values decreased 0.6 percent, and during the last five years, home values increased 40.9 percent.
East North Central Division (IL, IN, MI, OH, WI): decreased 0.9 percent (-3.4 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values increased 0.6 percent, and during the last five years, home values increased 21.6 percent.
Pacific Division (AK, CA, HI, OR, WA): decreased 0.9 percent (-3.5 percent, annualized) in the third quarter of 2007. Over the last 12 months, home values decreased 0.1 percent, and during the last five years, home values have increased 77.7 percent.

Jointly developed by Freddie Mac and Fannie Mae and first published by Freddie Mac starting in 1994, 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 one-unit detached, 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 more than 34 million records in the repeat-transactions database used to construct the classic Conventional Mortgage Home Price Index – this database includes transactions on one-unit detached and single-family townhome properties serving as collateral on loans originated through the third quarter of 2007 and purchased by Freddie Mac and Fannie Mae by October 31, 2007.

Freddie Mac publishes 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 392 metropolitan statistical areas (MSAs) and metropolitan divisions under the classic series of the CMHPI are available and the purchase-transaction only series is available for the nation and nine Census divisions. All of the index series can be found on Freddie Mac's web site, www.freddiemac.com/finance/cmhpi/.

Freddie Mac is a stockholder-owned corporation established by Congress in 1970 to support homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible more than 50 million times, ensuring financing for one in six homebuyers and more than four million renters.

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