The Office of Federal Housing Enterprise Oversight, Fannie Mae and Freddie Mac's chaperone, reports that average U.S. home prices increased a whopping 12.50 percent from the first quarter of 2004 through the first quarter of 2005, the largest four-quarter increase in over 25 years.

"The House Price Index shows the rise in house prices continues at an extremely strong pace and raises the potential for declines in some areas later on," said OFHEO Chief Economist Patrick Lawler.

The Federal government is anxious to slow housing without a hard landing as housing has been a driving economic engine in the U.S. economy. With only tepid gains in stocks and bonds, many investors turned to real estate, where they could use and enjoy their investment as well as profit from it. In 2004, the National Association of Realtors reported that nearly one-third of housing sold in the U.S. was non-owner occupied, with about 20 percent purchased by investors and another 13 percent of housing purchased by second-home buyers.

Where were the biggest gains? The top ten biggest four-quarter and first quarter housing gains were:

State	One Year	First Quarter
Nevada	31.22	3.48
California	25.42	3.79
Hawaii	24.36	4.03
District of Columbia	22.21	2.71
Florida	21.42	4.40
Maryland	20.97	3.7
Arizona	19.4	5.20
Virginia	18.57	3.60
Rhode Island	17.05	1.91
New Jersey	15.84	2.54

While no states posted declines, low interest rates and a national housing frenzy failed to do much for Colorado, Ohio, Oklahoma, Indiana, or Texas which posted the worst appreciation of the states with a tepid 3.77 percent gain year over year, and first quarter gain of 0.36 percent.

The fastest appreciating metropolitan statistical area (MSA) was Bakersfield, California with a 33.67 percent increase year over year, and 5.52 percent increase for the first quarter. The lowest performer was the Youngstown-Warren-Boardman MSA in Ohio-Pennsylvania with a .85 percent increase year over year, and a -0.17 decrease in the first quarter.

Few MSAs reported house price declines in the first quarter, but out of the bottom 20, only two reported gains over one percent year over year. Half reported losses.

Since 1980, U.S. house prices have increased 248.83 percent, 50.53 percent in the last five years.

The statistics covered in the House Price Index are based on transactions involving conforming, conventional mortgages on single-family homes which are purchased or securitized by Fannie Mae or Freddie Mac. Housing Enterprises Financial Safety and Soundness Act of 1992 requires the OFHEO to test for stress. The purpose of the Index is to measure "the capital adequacy of Fannie Mae and Freddie Mac" by using a house price index to "account for changes in the loan-to-value ratios of mortgage held or guaranteed by Fannie Mae of Freddie Mac."

The report is bound to capture Federal Reserve Chairman Alan Greenspan's attention. While the Fed doesn't see itself as responsible for controlling prices in stocks, bonds or real estate, it does strive to prevent inflation by controlling the supply of money in the marketplace.

But as the chief regulator of the nation's banks, the Fed has to be worried about the relaxed lending that's going on which has encouraged speculation and/or overbuying, increasing foreclosures in many areas to record or near-record highs.

Greenspan has already tried to alert the media that there's not a housing bubble, but noted there is "frothiness" in certain areas, creating speculation that controls could soon come locally via stricter borrower qualifying and home appraisal guidelines. This will slow Fannie Mae and Freddie Mac down without bursting the national bubble.