NEW YORK (CNNMoney.com) -
In the latest sign that home price appreciation is slowing as mortgage rates rise, mortgage lender Freddie Mac said Monday that third-quarter price gains were the slowest in five quarters.
Home prices rose 12.3 percent in the third quarter on an annualized basis, down from a revised second quarter pace of 15.3 percent, the mortgage firm said.
"The gradual rise in mortgage rates during the third quarter moderated home price gains, compared with the second quarter," said Frank Nothaft, Freddie Mac vice president and chief economist, adding that fixed- and adjustable-rate mortgages have risen nearly half a percentage point from the end of June through the end of September.
"The devastating effects of hurricanes Katrina, Rita and Wilma will likely keep overall construction material costs high and add to new construction in the effected region," said Nothaft, which he said should push home sales and single-family housing starts to record highs in 2005.
But the outlook for next year is less robust.
"Our forecast for 2006 has about a 7 percent decline in new starts and home sales, and with more moderate home price gains than in 2005," added Nothaft.
Housing slip: reason to worry?
The report is the latest pointing to what looks like a growing soft patch in the nation's housing market.
Home prices climbed through September, but the pace of growth slowed, the Office of Federal Housing Enterprise Oversight said last Thursday. (Full story)
The OFHEO, which regulates mortgage firms Fannie Mae and Freddie Mac, said the average U.S. home price rose 12.2 percent for the 12 months through Sept. 30 from a year earlier, compared with 14.2 percent for the 12 months ended June 30. (For a full list, click here.)
Some deceleration in appreciation was also noted in faster-appreciating markets, OFHEO chief economist Patrick Lawler wrote in a report.
And home builders have been cutting prices and scaling back their applications to build, suggesting that they see a downturn coming in the home market.
A slowing real estate market has major implications for the economy.
Some economists with relatively strong employment forecasts say the job market could get hit by a slowdown in home building and real estate. (Full story)
Mark Zandi, chief economist of Economy.com, said last week that real estate, home building, mortgage finance and other home-related industries together accounted for 9.7 percent of total domestic employment in the second quarter of 2005, up from 9.0 percent in the fourth quarter of 2001.
Moreover, the real estate slowdown has added to fears that cash-strapped American consumers will no longer be the main driver of economic growth. (Full story)
Some experts, including University of Maryland business professor Peter Morici, note that as home prices rose and interest rates fell in the early 1990s, millions of Americans took cash out of their homes via refinancing -- money they used to buy computers, TVs, vacations, cars and other consumer goods.
But now, with rates rising and home price appreciation slowing, the cash-refi party is slowing.
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