Magazine article American Banker

Freddie's New Home-Price Index Shows That Values Are on the Rise

Magazine article American Banker

Freddie's New Home-Price Index Shows That Values Are on the Rise

Article excerpt

Freddie Mac has launched its own index of home prices, three years in the making, and its first report has at least a smidgen of good news.

Prices climbed at a healthy annual rate of 3% in the fourth quarter, substantially more than the 1.90% for the year as a whole. The acceleration toward yearend suggests an improved outlook for prices this year.

Mortgage lenders prefer an environment of rising prices for a number of reasons. One is that stronger values reduce the chance of default by borrowers and increase the value of the collateral. Another is that an uptrend, if strong enough, also provides an investment motivation for homeownership that can stimulate demand.

Relatively Low Prices

Because the cost of homeownership is presently very low relative to incomes, there is little fear that moderately rising prices will choke off demand.

"The numbers for the year actually look mediocre," said Robert van Order, Freddie's chief economist. "Inflation has been about 3%, and housing prices are up about 2%. Looking ahead, though, you'll find housing prices rising faster than inflation."

Mr. van Order said that because of the relative stability of prices today, there was little investment motivation for purchasing. "Also, there's no sense that if you don't buy now, you'll have to pay much more next year."

Hard to Gauge

Tracking home prices accurately has been a difficult task because changes in the kind of homes being sold at any given time may distort the comparisons. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.