McLEAN, VA – Freddie Mac announced that its quarterly national Conventional Mortgage Home Price Index (CMHPI) rose 4.0 percent in the third quarter 2006 on an annualized basis, down from a revised second quarter 2006 annualized rate of 5.2 percent.

“The housing market is feeling the full force of the 17 interest rate hikes initiated by the Fed in June of 2004, bringing the Federal Funds rate from 1 percent to 5.25 percent,” said Frank Nothaft, Freddie Mac vice president and chief economist. “It takes between 6 and 18 months for the economy to fully react to Fed actions and housing is the most interest rate sensitive segment of the economy. Thus, it isn’t surprising that the housing sector is now showing such a strong reaction to higher rates.

“It is important to note that in aggregate, home prices are still rising. However, there are many measures of house values that indicate different trends. The CMHPI measures changes in the values of the same properties over time and is less susceptible to changes in the quality mix of homes that have sold, like measures of median prices can be. Nonetheless, some areas have taken the transition from a sellers market to a buyers market rather hard and it may be some time before both groups get comfortable with the current dynamic.

“Longer term interest rates like those on 30-year fixed-rate mortgages have come down during the third quarter to levels similar to the same period last year. This decline in mortgage rates may soften the blow to housing, convincing buyers who might have been on the fence regarding whether to make an offer on a house, to do so now. While we don’t expect a full turnaround in home sales in the near future, the reprieve from rising rates may stop the decline in home sales and construction heading into next year.”

Nationally, home values increased 7.9 percent from the third quarter of 2005 through the third quarter of 2006, down from the 12.7 percent annual growth seen over the four quarters ended in September 2005.

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