McLEAN, VA - Freddie Mac announced that its Conventional Mortgage Home Price Index (CMHPI) Classic Series registered a 0.5 percent drop in U.S. home values during the fourth quarter of 2007 on an annualized basis, up from a revised third quarter 2007 annualized rate of -1.5 percent and the first consecutive quarters of decline since 1982.  Over the year ending with the fourth quarter, home values appreciated 0.3 percent on average, down from the 6.2 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 9.3 percent nationally during the fourth quarter on an annualized basis; the last time a larger drop was recorded was during the third quarter of 1972.  Over the four quarters ending in December 2007, home sales prices fell an average of 0.9 percent in the CMHPI Purchase-Only Series.

 “The financial market turmoil that started in the third quarter continued into the fourth, making it harder to get mortgage financing for a home purchase or refinance and foreclosures continued to rise, putting additional stress on the inventory of homes for sale,” said Frank Nothaft, Freddie Mac vice president and chief economist.  “Reporting on their survey of commercial bank lending practices, the Federal Reserve noted that 64 percent of reporting banks had seen a large reduction in the demand for home purchase mortgages in the last three months of the year, which is consistent with the weakness in home prices we are seeing now.  More than 50 percent of banks reported tightening their lending standards on prime mortgage loans for home purchases and none eased standards.

“To be sure there are still many homes being bought and sold in the U.S., with 5.01 million one-family homes (excluding condos) sold in the fourth quarter on an annualized basis, roughly the rate we saw in 1997.  But the buyers are in the driver’s seat today and they are demanding both price reductions and seller concessions to make a deal.”
 
“The decline in home values occurred in every region in the U.S. according to the CMHPI Purchase-only measure and only four states posted gains in home values during the fourth quarter: Maine, North Dakota, South Dakota, and West Virginia.  The Pacific region fell the most at a 17.2 percent annualized rate, led by declines in home values in California of nearly 25 percent on an annualized basis.  Over the past twelve months, home values declined 4.2 percent in the Pacific region.  In contrast, a robust energy industry in the oil-patch states fueled a 3.2 percent annual 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 East South Central states led growth in home values with an annualized appreciation rate of 3.5 percent during the fourth quarter, followed by the West South Central states, which showed a smaller gain of 3.1 percent.  The West North Central states came next, with a growth rate of 3.0 percent.  The East North Central states experienced a price growth of 2.8 percent while the Middle Atlantic region saw a positive growth rate of 1.5 percent.  This was followed by a 1.2 percent rate of growth in the New England region and a drop of 0.1 percent in the Mountain states.  The South Atlantic states saw a drop in average values of 0.6 percent and the Pacific region saw home values slip 8.1 percent.