You may not like this news, but you need to know if you care about home values: The high-flying American home inflation balloon finally is losing some of its hot air.

This is true even in areas where annual appreciation gains have been in the double digits and where houses still go to the highest bidder in multiple-contract contests.

The latest quarterly price inflation study compiled by the Office of Federal Housing Enterprise Oversight (OFHEO), covering more than 220 metropolitan markets, documents significant slowdowns across the country. Though the average national appreciation rate for homes was still an impressive 7.7 percent from the first quarter of 2003 to the first quarter of 2004, the 2004 first-quarter data reveal a cooling trend in even the hottest places.

Of the 53 metro housing markets where the last full year's price inflation was in double digits, only one -- Las Vegas -- registered an annualized first-quarter rate equal to or above last year's rate. To illustrate: The Washington area market sizzled over the 12 months with appreciation of 12.65 percent. Yet the annualized first-quarter rate for 2004 was just about half that -- 6.72 percent.

Ditto for high-octane New York state, where average home appreciation during the past year was at 10.2 percent, but the annualized gain during the first quarter was just 2.4 percent. Florida's 2003 to 2004 rate of 11.7 percent cooled off to an annualized 8.3 percent during the first quarter of 2004. California dropped from 13.9 percent to 8.4 percent.

Nationwide, annualized first-quarter price appreciation reflected a similar softening -- 3.8 percent vs. the 7.7 percent rate for the prior 12 months. The non-annualized quarterly increase of just 0.96 percent was the lowest since 1998.

Equally noteworthy is that in 39 regional real estate markets, home values actually declined slightly on a quarterly basis. During the last quarter of 2003 there were only three such depreciating markets, and no entire states. In the first quarter of this year, by contrast, six states went slightly negative (Vermont, Alaska, North Dakota, South Dakota, Iowa and Nebraska).

Looking at the country's housing appreciation patterns from a satellite using thermal imaging, you would see a distinctive "parentheses" pattern, with the hotter markets in red concentrated along the Atlantic and Pacific coasts, and the slower-appreciating blue and green markets generally in the middle and southern sections of the country.

Other than Nevada (15.1 percent gain over 12 months), all the high-froth housing appreciation markets are coastal: Hawaii (15.2 percent), Rhode Island (14.8 percent), California (13.9 percent), Maryland (12.9 percent), Florida (11.7 percent), New Jersey (10.9 percent), Delaware (10.4 percent), New York (10.2 percent) and Virginia (10.1 percent). The District, treated as a state for statistical purposes by the OFHEO, came in with the fourth-highest annual rate of appreciation -- 14.3 percent.

The slowest-gaining states in the last 12 months were Utah (1.95 percent), Texas (2.34 percent), Indiana (2.8 percent), Colorado (2.9 percent), and Alabama (3.2 percent).

The good news here is that in residential real estate, moderate and steady appreciation is good. Wild and crazy appreciation -- read tulip bulb mania -- is bad. High double-digit appreciation rates tend to consume the markets in which they occur. Houses become unaffordable, people and businesses start to move elsewhere and the price gains fizzle out.

Remember how out of control home prices got in the San Francisco Bay and Silicon Valley markets at the height of the dot-com frenzy? It's instructive to take a look at where San Jose and San Francisco have been since then. In 1999 and 2000, annual home appreciation rates were rocking along in both areas in the high teens and even more than 20 percent.

Last year, by contrast, the market value of the average home in San Jose increased by just 2.3 percent. In San Francisco, the rate was 5.2 percent. Both markets have undergone corrections, but there has been no bust. San Jose's annualized first-quarter appreciation number even shows signs of an incipient revival -- a 4.2 percent rate, nearly double last year's.

The same sort of pattern, a moderate slowdown in the rate of price appreciation, is now likely in many other high-gain markets. That trend could be enhanced by expected increases in mortgage interest rates later this summer and fall, as the Federal Reserve throttles back the American economy.

As that process unfolds, keep this in mind: Slower real estate appreciation means more people will be able to afford to buy your house. And as long as home appreciation rates stay at double or triple the underlying rate of inflation in the overall economy, let's face it -- you're doing just fine.

Kenneth R. Harney's e-mail address is kharney@winstarmail.com.