Freddie Mac reported last week that its quarterly national Conventional Mortgage Home Price Index rose 2.1% in quarter one 2006, or an annualized 8.7%. This is down from the fourth quarter's annualized rate of 12.9%. The year-over-year change (1Q05 to 1Q06) was 12.7%. These results were similar to the Office of Federal Housing Enterprise Oversight's recent report, which recorded first quarter growth at 2.03%, an annualized first quarter rate of 8.12%, and a year-over-year rate of 12.54%.

According to Freddie Mac, the Pacific states posted the strongest home-value appreciation in the U.S. with 3.2% for the quarter, or an annualized 13.3%. This region includes Hawaii, which the OFHEO last week reported as having the highest quarterly growth. Freddie Mac's Deputy Chief Economist Amy Crews Cutts also noted that Hawaii has the fastest growth rate in the first quarter at 20.7% annualized.

The second fastest region was the South Atlantic at 12.7%. This region includes Florida. The OFHEO's report showed the state as having the second highest quarterly growth after Hawaii. The second slowest area of growth was in the East North Central Division with 3% annualized growth. This includes Michigan, Ohio and Indiana, which have been hurt by job losses in manufacturing, Cutts said. The slowest area at 2.5% was the West North Central Division, which includes, Iowa and South Dakota, states that had negative growth rates for the quarter.

"The first quarter of 2006 marks the third consecutive quarter of moderation in home-value growth," Frank Nothaft, Freddie Mac's chief economist said. "We are expecting about half of the increase that we saw in the national average home-value appreciation in 2005 for 2006, which puts annual home price growth between six and eight percent, depending on how fast interest rates rise over the remainder of the year." He added that this is still above the long-term average growth rate and "reflects a still vibrant but normalizing housing market."

Regarding the OFHEO's recent report, Lehman Brothers analysts believe that the decline from 12% annualized in 4Q05 to 8% in 1Q06 is fairly significant. They note that over the past 15 years, this was the fourth largest quarter-over-quarter decline in the rate appreciation. "So while home prices continued to grow in 1Q06, the decline in HPA points to a significant slowdown in the market," analysts said.

They also raised concerns with price reversals across MSAs. For example, they point out that just 7% of MSAs recorded annualized price appreciation compared to over 20% in the fourth quarter. Also of note is that 22% of MSAs had a negative HPA in the first quarter versus less than 10% in the Q4 survey.

Potentially adding to further pressure on home price appreciation going forward is the increasing supply of homes on the market, Credit Suisse analysts said. Current levels - at nearly six months - is the highest level since February 1998.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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