Home Prices Soar

Record low mortgage rates drove prices up 6.9 percent last year as sales hit a record.

Home prices rose 6.9 percent in the United States last year as record low mortgage rates pushed sales to all-time highs, the government reported Monday.

The housing sector has been a pillar of strength for the sluggish U.S. economy, as strong demand for homes has buttressed construction jobs and sales of household goods. Consumers, who account for two-thirds of the U.S. economy, have been tapping into higher home values through "cash-out" refinancings of their existing mortgages to get cash for spending or paring their debt.

"The U.S. housing market is the strongest in the world right now. There is no surprise on the upside," said Mark Zandi, chief economist at Economy.com in West Chester, Pa.

But the sector may finally be cooling off.

"Appreciation was much slower in the second half of the year than the first half," the Office of Federal Housing Enterprise Oversight (OFHEO) said in a statement that accompanied its quarterly home price report.

While prices rose sharpy for the year, average prices rose just 0.83 percent in the fourth quarter from the third quarter, the smallest quarter-to-quarter increase since the second quarter of 1998, according to OFHEO, the agency that oversees the financial soundness of mortgage finance giants Fannie Mae and Freddie Mac.

Three states -- Vermont, Wyoming and Alaska -- and 22 metropolitan areas experienced declines in home prices in the fourth quarter from the third quarter. In the third quarter, seven states and 33 localities posted home price decreases, OFHEO said.

In the last five years, average U.S. home prices grew 38.3 percent.

The housing market got off to a mixed start in 2003. In January, new home sales fell 15.1 percent, but existing home sales rose 3 percent to the highest monthly level ever, according to government and industry data released last week. Median prices of new and existing homes fell in January from December, but came in higher than a year earlier.

California continues to dominate on one level, with 11 of the top 20 metropolitan areas showing the greatest home appreciation during the fourth quarter, the agency said. Yolo, Calif., led the 331 U.S. metro areas tracked by the agency, with prices of homes rising 16.5 percent in 2002.

But the state of California ranked fourth overall, with home prices rising an average 11.5 percent last year.

Rhode Island took the top spot, with home prices rising 15.7 percent last year, more than double the national average.

New England had the greatest home price gains among the nine regions tracked by the agency. New England home prices rose 1.4 percent during the fourth quarter and 10.6 percent in 2002.

Source: CNN Money