Home sales may be slowing in major markets around the country, but the latest federal survey of price appreciation suggests that the real estate boom was alive and well -- at least as of the final quarter of 2005.

The Office of Federal Housing Enterprise Oversight (OFHEO), the only agency that tracks real estate valuation changes in over 300 markets using fresh appraisal data, found that the average American house gained nearly 13 percent in value between the end of 2004 and the end of 2005.

Fourth quarter 2005 numbers for some parts of the country -- particularly Florida and Arizona -- were in full-fledged boom mode. Houses many metropolitan markets in Florida gained 30 percent or more in the last year, according to OFHEO. Home values in Naples jumped by a stunning 39 percent, Cape Coral 36 percent, Sarasota and Ft. Walton Beach 30 percent. The Florida statewide appreciation rate for the year was a torrid 26.8 percent.

Arizona property values also were on fire: Phoenix-Scottsdale homes gain 39.7 percent during the 12 month period ending in December. Prescott homes gained an average 35 percent, and Tucson 29 percent.

The picture was starkly different in dozens of other areas, especially in the industrial Midwest, where average appreciation rates were in the single digits at best. Economically-strained markets in Michigan, Ohio, and Indiana -- all hard hit by auto industry-related layoffs -- had anemic price gains for the year. Detroit's appreciation rate was just 2 percent. Bay City, Michigan homes gained just 0.4 percent, with a 1.75 percent decline in the final quarter of 2005. Dayton, Ohio, properties gained just 3.1 percent.

The latest OFHEO data, which many analysts had expected would document the first signs of significant price slowdowns caused by sales volume declines, surprised even OFHEO's own experts.

"Despite recent indications that a slowdown may be forthcoming, house price appreciation during 2005 continued to hover at near-record levels" on a national basis, said OFHEO chief economist Patrick Lawler.

"While deceleration continues in some areas, appreciation generally is still extremely strong," he said.

Home building and mortgage industry economists suggested that one reason for the continuing high appreciation rates may be exceptionally high demand tied in with demographic factors. The hottest markets in the latest OFHEO data were virtually all in either Sun Belt retiree and second home meccas, or in mountain getaways where investors have been snapping up resort properties that had been moderately priced. Examples of the latter include St. George, Utah (+ 35 percent) and Coeur d'Alene, Idaho (+ 32 percent).

Many of the hottest markets may be benefiting from baby boomers who are moving equity from more northerly, high cost markets in the Northeast and California, to more moderately-priced potential retirement locations with warmer climates. The data also reflect the impact of continuing low mortgage interest rates -- under 6 percent for 30 year fixed rate loans for borrowers with good credit histories.

A cooling trend is evident in some once-torrid markets in New England, California and Nevada. Boston, which once led the country with multi-year double-digit price appreciation, registered a more modest 7.3 percent in the latest OFHEO study. San Diego, where price inflation exceeded 25 percent for much of 2003-2004, was down to 11 percent last year. Las Vegas, where annual price increases once exceeded a record-breaking 40 percent, was down to 15.4 percent by the end of 2005, according to OFHEO.

That is still hot by any historical measure. But the direction signs are downward. Economists at Freddie Mac and the National Association of Realtors predict that most markets will see moderation in appreciation -- and a few will slip into negative territory -- as the year progresses.

Published: March 6, 2006

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.