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National Home Values Fall in Third Quarter

Largest quarterly drop in 25 years; West Coast hardest hit

December 5, 2007

Freddie Mac has announced 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.

It's 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.

“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," said Frank Nothaft, Freddie Mac vice president and chief economist.

"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,” Nothaft said.

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, he noted.

Pacific region hardest hit

“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," added Amy Crews Cutts, Freddie Mac’s Deputy Chief Economist.

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,

Based on the Freddie Mac data, 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.

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