Home price appreciation slowed considerably around the country in the third quarter, with seven states and 33 metropolitan areas experiencing price declines, a federal report released this week shows.

The findings were evidence that housing, the brightest sector in an otherwise slumping economy, has started weakening. But the declines were in line with most housing economists' predictions that house price appreciation would eventually start slowing.

Although the July-to-September appreciation figures are down sharply, compared with the second quarter, U.S. home prices continued to rise at an annualized rate of 6.16 percent, according to figures from the Office of Federal Housing Enterprise Oversight. The third-quarter rate was 0.84 percent, compared with 2.39 percent in the second quarter. Besides a brief period after the 2001 terrorist attacks, quarterly appreciation rates have been about 2 percent over the past two years.

"We see a definite deceleration in appreciation," said Shelly Dreiman, senior economist at the housing oversight office. "This quarter, there was a dramatic change. But we only have one quarter of such a change so far. So we're taking a wait and see approach."

Dreiman said it was unclear how long the slowdown would last. She said she was not surprised by the quarterly data, however, because she had been expecting a "market correction."

"We couldn't maintain the levels of appreciation we had," she said.

Although appreciation rates are down, many economists predict that the real estate market will remain buoyant, helped by low mortgage rates.

"We don't need to worry that the bubble is going to burst," said Orawin Velz, an economist at secondary mortgage company Fannie Mae. "There is no national bubble, there is no big correction that will happen nationally. An 0.84 percent appreciation rate is anemic compared to what we've been seeing. But we're looking at a 6 percent rate for the year, and that's still good."

While house prices in other parts of the country slumped, prices in the Washington area continued to climb. The area, which includes the District and the Maryland and Virginia suburbs, as well as parts of West Virginia, posted an annual appreciation rate of 11.31 percent. Third-quarter prices rose 2.33 percent, compared with the second quarter.

When considered as a state, the District ranked second highest in the country in terms of annual appreciation rates, behind Rhode Island. The District's annualized appreciation rate was 11.03 percent this quarter over the third quarter of last year. Maryland was fifth, at 10.11 percent, and Virginia was 12th, at 8.69 percent.

Seven states experienced price declines in the third quarter: Vermont, Illinois, Kansas, Michigan, Wisconsin, South Dakota and Alaska. Thirty-three metropolitan areas out of 185 saw had declines in prices, including Houston; Seattle; Cincinnati; Toledo; Jackson, Miss.; and Burlington, Vt. Price declines were small, however -- less than 1 percent in almost all cases.

Among areas that, like Washington, posted high appreciation rates, California dominated the list with 10 areas in the top 20. The highest third-quarter appreciation rates were in the New York counties of Nassau and Suffolk, which posted annual gains of 14.69 percent.

National house price appreciation reached its three-month peak in the first quarter of 2001, at 9.01 percent, and has been steadily dropping since. Average U.S. price appreciation is 181.6 percent since 1980.

The Office of Federal Housing Enterprise Oversight study tracks changes in the prices of individual homes that were sold or refinanced. The survey only looks at properties with mortgages that were bought or sold as stocks by secondary mortgage giants Fannie Mae and Freddie Mac. Most high-end homes, priced at more than $300,000, were not included in the survey. Prices have fallen more in the high-end of the market, Velz said.

Freddie Mac this week released its study of cost appreciation, which showed similar trends.