1st-Quarter Home Prices Rise, but at Slower Pace

Numbers Decline in Iowa, South Dakota

In the market that includes the District, the average home price increased 2.4 percent for the quarter. (By Michel Du Cille -- The Washington Post)

U.S. home prices continued to rise in the first quarter of the year, but in another sign of a cooling market the pace slowed from the last quarter of 2005, according to a report released yesterday.

Home prices nationally were 12.5 percent higher in the first quarter than a year earlier, according to the survey released by the Office of Federal Housing Enterprise Oversight. In 2005, the average home price jumped about 13.3 percent.

The typical home's value, though, rose only 2 percent in the first three months of 2006, an annual rate of 8.1 percent. That is about a percentage point below the rate from the fourth quarter of 2005 and the lowest quarterly rate of increase since the first quarter of 2004.

Also, for the first time since late 2002, average home prices fell for the quarter in two states, Iowa and South Dakota.

"These data show average housing prices still growing stronger than some might have expected," said James B. Lockhart III, acting director of OFHEO, which regulates mortgage giants Fannie Mae and Freddie Mac. "They do indicate, however, that price growth is moderating in some parts of the country, particularly in areas where prices have been rising the most."

In the Washington area, price growth slowed but still far exceeded the national rate. The District, which is counted as a state in the report, came in fifth in the nation, with 20.8 percent growth for the 12 months and 1.5 percent for the quarter. That compares with about 23.4 percent growth in 2005.

In the market that includes the District, Northern Virginia, and Prince George's, Charles and Calvert counties in Maryland, and Jefferson County in West Virginia, the average home price increased 21.8 percent for the 12 months and 2.4 percent for the quarter. In the Montgomery County-Frederick County market defined by the Census Bureau, it was up 18.4 percent for the 12 months and 2.5 percent for the quarter.

For the fourth quarter of 2005, prices in those two markets had increased at annual rates of 24 percent and 20 percent respectively.

Economists said the data were consistent with previous reports of slowing sales of new and existing homes and rising inventories. Many blame rising mortgage rates and a five-year run-up in prices for hurting affordability and sales.

"We've seen substantial home price appreciation in the last five years, particularly on both coasts, that has begun to pinch affordability, especially for first-time home buyers," said Frank E. Nothaft, chief economist for Freddie Mac. As mortgage rates have moved up for the past six months, housing starts, single-family home sales and prices have moderated, he said. "It's clear that it peaked somewhere during the fall of 2005."

Freddie Mac reported yesterday that rates on 30-year, fixed-rate mortgages averaged 6.67 percent, up from 6.62 percent last week. Rates have not been that high since June 2002.

The OFHEO survey is considered the best gauge of prices because it compares prices of the same houses sold or refinanced over time.

Part of the reason prices have held up is that even though homes are taking longer to move, sellers are holding out for their asking prices, said Patrick Lawler, OFHEO chief economist, and "largely they are getting them."

Prices continued to rise the most in vacation areas, such as Arizona, Florida and the Pacific Northwest, although the growth is also slowing there, Lawler said.

The slowing in prices doesn't surprise Donna Evers, head of Evers & Co. Real Estate Inc. in Northwest Washington. She said "prices have more or less leveled off" as the inventory of homes for sale has grown.

Inventory, Evers said, has reached numbers not seen since 1999. But she said sellers should not worry: "1999 was a boom year."