The latest major housing market report reveals the level of home price appreciation is shrinking at a rate not seen since 1975.

On the heels of growing numbers of reports that inventories are rising as home sales are falling, the Office of Federal Housing Enterprise Oversight's Home Price Index for the second quarter 2006, reveals home prices rose 10.06 for the year and only 1.17 percent from the first quarter to the second quarter, for an annualized rate of 4.68 percent.

A year ago, home prices rose an average 14.04 percent for the year and 3.65 percent from the first quarter to the second quarter, for a 14.62 percent annualized rate.

Last year in the second quarter, the 14.04 percent year-to-year increase was the highest in recent history for the OFHEO.

The quarterly rate for the second quarter this year reflects a sharp decline of more than one percentage point from the previous quarter this year (2.2 percent) and is the lowest rate of appreciation since the fourth quarter of 1999 (1.12 percent) -- an era that spawned widespread home price deflation.

The decline in the quarterly rate comparing the second quarter this year to the second quarter last year (from 3.65 percent, down to 1.17 percent) is the sharpest decline since the beginning of OFHEO's House Price Index (HPI) in 1975.

The annualized rate, now at only 4.68 percent, peaked at 17.87 percent during the third quarter of 2004.

Home prices still moved faster than prices of non-housing goods and services in the Consumer Price Index over the past year, OFHEO reported, but the housing market continued to show signs of wear in a growing number of regions.

The blame for historically low levels of appreciation goes to a convergence of factors -- unaffordable housing, more attractive rents, higher interest rates, speculators and investors bailing out and the resultant rise in the supply.

The fundamentals always apply.

"These data are a strong indication that the housing market is cooling in a very significant way. Indeed, the deceleration appears in almost every region of the country," said OFHEO director James B. Lockhart.

Bend, OR, in one quarter moving up from No. 6, was the new home price appreciation leader among 275 metro areas with an annual rate of appreciation at 36.65 percent and a quarter-to-quarter rate at 7.37 percent. At the bottom of the heap, Ann Arbor, MI's home prices tanked, dropping 1.28 percent for the year with a full 1 percent loss in home values from the first to second quarter this year.

Bend is part of a trend. While the 20 Metropolitan Statistical Areas (MSAs) with the highest appreciation included nine cities in Florida, the representation of other states continues to grow. MSAs in North Carolina, South Carolina, and Washington State are now among the fastest appreciating markets.

Another trend reveals most states that had the highest home price appreciation in the first quarter this year, fell hardest when year-over-year numbers were examined in the second quarter.

Other significant OFHEO HPI findings included:

• Arizona dropped nine percentage points in its four-quarter appreciation rate, but still had the highest rate of appreciation among the 50 states. Prices were up roughly 24 percent compared to the second quarter of 2005, but grew only 2.94 percent in the most recent quarter.

• All states revealed appreciation for four quarters but five Midwestern and New England states had small price decreases in the second quarter.

• Also hit hard was the South Atlantic Census Division including Florida, Delaware, the District of Columbia, Virginia and Maryland where the most significant price deceleration was experienced since at least the early 1980s. The region's four-quarter appreciation rate fell from 17.43 percent to 13.74 percent.

• New England's four-quarter appreciation rate fell big too, from 8.71 percent to 5.68 percent. Appreciation rates in Massachusetts were consistently among the 10 highest between mid-1997 and mid-2003, but its four-quarter appreciation rate now ranks No. 48 among the states and the District of Columbia.

• Price appreciation remained relatively robust in Louisiana and Mississippi, the two states hardest hit by Hurricane Katrina. Four-quarter appreciation rates were well above the national average in cities in the area including: New Orleans-Metairie-Kenner, Gulfport-Biloxi; Baton Rouge; and Pascagoula. Gulfport-Biloxi and Pascagoula logged their highest appreciation rates since the beginning of OFHEO's Index.

• Michigan had the greatest number of price decreases among ranked MSAs. A baker's dozen, 13 of Michigan's 16 ranked metropolitan areas, exhibited quarterly price decreases.