The decade-long home appreciation boom may be losing a little of its previous oomph, but the newest federal data suggest there’s still plenty of energy left.

The value of the average American home grew by 5.56 percent from the end of the second quarter of 2002 through the same period of this year, according to the Office of Federal Housing Enterprise Oversight (OFHEO). The agency tracks the values of millions of homes financed and refinanced by Fannie Mae and Freddie Mac nationwide.

The latest quarterly data, released last week, show that 27 major metropolitan housing markets racked up double-digit average gains last year -- defying predictions of a real estate bust induced by the sluggish economy.

Tops on the hot market list in the past year: Fort Pierce-Port St. Lucie, on Florida’s Atlantic Coast, where the average home jumped in resale value by 14.68 percent. The annualized quarterly appreciation rate in that metro area was an even more torrid 18.2 percent.

Four of the top 20 metropolitan appreciation markets in the new study were in Florida, but fully 10 were in California. (The complete study, covering over 300 local housing markets, can be viewed at www.ofheo.gov.)

Top-ranking state for the year, however, was tiny Rhode Island, where average home values jumped by 11.8 percent. The District of Columbia--treated as a state in the survey--came in next with a 10.1 percent average gain. Rounding out the top five were California (9.44 percent), Florida (8.68 percent) and Maryland (8.49 percent).

The lowest appreciation rates were in Nebraska (2.14 percent), Utah (2.51 percent), South Dakota (2.58 percent), Colorado (2.67 percent) and Kansas (2.75 percent.)

No major metropolitan area registered a net decline in home values, despite challenging economic conditions in dozens of communities. San Jose, California, still suffering from dot-com fallout, saw average gains of just 1.6 percent last year. Nearby San Francisco had a 3.81 percent appreciation rate during the same period.

In a special analysis on California home values accompanying the latest national survey, OFHEO called attention to the rapid appreciation underway in the “less expensive” areas of the state versus relative weakness in some of the higher cost markets.

For example, in stark contrast to San Jose’s anemic 1.6 percent annual rate, less-costly markets south of the Bay region have been sizzling hot in the last year. Fresno’s average home gain of 14.12 percent was second highest in the USA. Bakersfield’s rate was 10.35 percent. Both markets, according to OFHEO, not only offer affordable housing costs but are also attracting large numbers of immigrant home buyers and retirees. That demand, in turn, is bidding up values.

Florida’s strong showing in the latest data represents a continuation of a trend that only began in 2001. Whereas Florida appreciation had generally lagged behind national averages through much of the 1990s, values throughout the state have surged in the past 24 months. During the period 1990 through 2000 Florida never ranked in the top tier of high-appreciation states. Now one of its metro markets is tops in the country, and the state as a whole ranks consistently in the top five.

On a national basis, the 5.56 percent average home value gain also continues a trend that began in 2001--a gradual cooling down of housing inflation from earlier, record highs. Whereas the annualized national rate of appreciation hit 8.3 percent in the second quarter of 2001--the most recent market peak--it has steadily slipped, quarter by quarter, ever since.

Economists at Freddie Mac and the Mortgage Bankers Association of America predict that rising mortgage interest rates are likely to further restrain appreciation rates, dipping into the low 5 percent-upper 4 percent range by early 2004.

But even with national rates at that level, a handful of local markets--where effective demand and household incomes exceed the supply of homes available for sale--are likely to continue turning in double-digit jumps in value.

The challenge for heads-up real estate investors: Spot those markets in advance, and get your money on the table.

Published: September 8, 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, 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.