Highest Annual Value Growth since 1980

Freddie Mac's home mortgage index shows by region the growth in home values. California, part of its Pacific Division, is included in this analysis: Pacific Division (AK, CA, HI, OR, WA): increased 3.9 percent (16.6 percent, annualized) in the second quarter of 2004. Over the last 12 months, home values increased 17.1 percent, and during the last five years, home values have increased 74.2 percent. This is the highest regional increase in the country--six New England states are a close second with almost 72 percent increase.

The next question is, and has been for some time now, is this sustainable? According to Freddie Mac economist Amy Cutts, only to a point: "Thus far, the annual growth rates are consistent with the market fundamentals of declining interest rates, a lack of buildable land that restricts the amount of new supply hitting the market, and despite job losses, the strength of consumer spending. That said, anyone thinking about investing in a house should probably consider whether it would still be a good investment if the value only increased at one-third or one-half of the rates we've seen recently. I don't think home values will come down, but their rate of growth will likely slow back closer to average levels over the next year or so." A rise in interest rates will surely bring lower home prices to correspond to the buyer's ability to carry monthly payments at the current dollar amounts.

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