The December housing sales data was mixed with existing home sales showing a decline - to the lowest level since March 2004 - while new home sales rose nearly 3%.

The conflicting data has raised some questions among analysts.

Deutsche Bank reviewed the implications of the latest data along with other home market indicators reported in the Office of Federal Housing Enterprise Oversight's quarterly Home Price Index. Deutsche analysts note that OFHEO's index is one of the best and closely tracked measures of broad home prices. Deutsche analsyts expect the next release - scheduled for March 1 and consisting of 4Q05 results - is likely to be an important factor in the March 28 FOMC rate decision.

Based on Deutsche's analysis, researchers expect OFHEO to report a healthy 9% year-over-year growth in the fourth quarter and similar home price appreciation in the first quarter of 2006. Growth from the third to the fourth quarters, however, will show a sharp deceleration from about 12% in quarter three to 0% in quarter four. Analysts also expect a gradual slowing in growth to around 7% by the end of 2006.

A study from Morgan Stanley is projecting home prices to increase 13% in aggregate over the next two years, down from 27% over the past two years. This suggests an annual appreciation of around 6.5%, analysts say.

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

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