The federal government’s newest study on home price apprecition has something for everybody. If you fear a sharp downturn in home values, the Office of Federal Housing Enterprise Oversight (OFHEO) says fear not. Even in a soft economy with growing unemployment, the average American house gained in resale value from the first quarter of 2002 through the first quarter of this year by an average 6.48 percent--more than double the rate of inflation of goods and services elsewhere in the economy.

On the other hand, if you are convinced that housing values are out of touch with reality and are heading for a fall, OFHEO’s quarterly price-tracking data suggest that appreciation rates are indeed cooling off. On an annualized basis the rate of price appreciation nationwide dropped to 3.8 percent from the final quarter of 2002 through the end of March 2003. The prior quarter it was 5.2 percent.

More important, the latest OFHEO study--based on actual valuation data on millions of "repeat sale" and refinancing transactions in all 50 states and the District of Columbia--reveal a price appreciation pattern that has now become strikingly clear: Picture the country as sort of a parenthesis. That’s right--( ).

On the two far edges, appreciation rates generally are trending well above the national average. In the middle of the parenthesis--pretty much anywhere west of Virginia on the East Coat right up to California on the West Coast--price appreciation rates are trending below the national average.

For example, consider the average rates of home price gains for the past year as documented in the new OFHEO survey: Rhode Island (14.6 percent), District of Columbia (12.3 percent), New Jersey (10.6 percent), Florida (10.2 percent), New York (10.1), Massachusetts (9.8), Maryland (9.8), Maine (8.7 percent)), Virginia 8.4), Connecticut (8.4), Delaware (8.0). On the West Coast, California homes appreciated by an average 11.23 percent.

Now contrast that with averages from inside the parenthesis: Indiana (2.5 percent), Nebraska (2.2), Kansas (3.3), Texas (3.5), Michigan (2.9), Ohio (3.1), Colorado (3.5), Wisconsin (3.5), Kentucky (3.6), Utah (1.9).

Mortgage economists, including Doug Duncan of the Mortgage Bankers Association of America and Frank Nothaft of Freddie Mac, say the lower rates of gain in the central portions of the U.S. mirror the employment and income trends underway there. Many of those states have economies closely tied to traditional manufacturing and transportation industries, which have been losing jobs or shifting them overseas to lower-wage countries.

The East and West Coast states, by contrast, with a few exceptions--the Carolinas, Georgia, Oregon and Washington--have more information-based economies and generally lower unemployment rates and higher incomes. As a result, there is greater effective demand for houses on the market, and greater upward pressure on prices.

Moreover, said Nothaft, "historically prices and price increases in the center of the country have been more moderate" than rates of appreciation on the two coasts.

"But they’ve also been less volatile," and less vulnerable to sharp reversals as experienced in southern California in the early 1990s, when formerly red-hot properties lost 25 to 30 percent of their market values in a span of just a few years.

Those values have since more than bounced back, but the fact remains: High-cost markets where house values jump by double digits are more likely to experience jolting declines than markets where prices gain slowly and steadily, year after year.

Overall, according to OFHEO, the average home in the U.S. has increased in market value by nearly 190 percent since 1980. Not bad--especially when you compare it to your stock or bond portfolio.(The full OFHEO Home Price Index study can be viewed at www.ofheo.gov)

Published: June 9, 2003

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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, consumer 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.