Another Surprise on Rising Home Prices

Peter Coy

Attention, everyone who thinks Zillow knows zippo about home valuations (read some recent blog comments here and here): It ain't just Zillow that's saying home values are up.

Check out this announcement today from the Office of Federal Housing Enterprise Oversight, the organization that oversees mortgage-buying giants Fannie Mae and Freddie Mac. OFHEO (pronounced "oh-FAY-oh") says that single-family house prices were 7.7% higher in the third quarter of 2006 than one year earlier.* It said they grew at an annual rate of about 3.5% from the second to the third quarter of 2006. A slowdown, but not a decline.

There were declines from the second to the third quarter in only five states: New York, Rhode Island, New Hampshire, Michigan, and Massachusetts. And only Michigan was lower than a year earlier.

Idaho, Utah, Oregon, and Arizona were all up 16% to 17% from a year earlier.

Kind of amazing, when the Census Bureau and National Assn. of Realtor numbers show prices flat to falling. There are a couple of explanations. One is that the OFHEO index covers only single-family, detached homes with conforming mortgages, which currently are around $400,000 or less.

A more interesting difference is that the NAR figures, in particular, have been skewed downward by a change in the mix of homes being sold. When more cheap homes are sold, it pulls down the median sales price. OFHEO uses a statistical method to compare prices as particular homes are sold and resold over the years, avoiding the mix problem.

The OFHEO numbers are consistent with the S&P/Case-Shiller Home Price Indices released Nov. 28, which showed that prices in 10 major markets rose 3.7% in September from a year earlier.

*Asterisk for those who care: The OFHEO index uses valuations reported in refinancings as well as in sales. That number is influenced by overstatement of valuations. OFHEO's purchase-only index shows a 6% increase from a year earlier rather than 7.7%.