Freddie Mac released its quarterly Conventional Mortgage Home Price Index (CMHPI) results today, which showed that home values rose 0.4 percent in the second quarter 2007 on an annualized basis, down from a revised first quarter 2007 annualized rate of 2.0 percent, and the slowest quarterly growth rate in more than 12 years. The classic CMHPI index includes refinancing activity. Purchase-only transaction prices rose by 5.8 percent nationally in the second quarter on an annualized basis and 2.5 percent year-over-year, the slowest annual rate of growth in 14 years, according to Freddie. Freddie’s economist Frank Nothaft said the numbers, while far from good, may not be as bad as they first appear:

“While no one who has ever bought a home wants to see the value fall, thus far we are not seeing declines as deep as we did during the defense industry slump in the early 1990s or the energy market crash in the 1980s. For example, home values in California fell by 2.4 percent over the four quarters ended in December 1992 as layoffs really started to have an impact – more than 194,000 jobs were eliminated in California in that year – and at the worst point of the housing market decline in the state, home values were down by a cumulative 12.6 percent between the third quarter 1990 and the first quarter of 1995. But over the past twelve months, while California home values have gone down by 1.4 percent, non-farm payroll employment is up by 207,000 jobs, and families that bought their home in June 2005 have seen an average gain of more than 13 percent over two years.”

In spite of the national increase, some markets are clearly under stress: Michigan recorded a 6.1 percent quarterly drop, while Massachusetts and and Nevada recorded a 1.5 percent price drop. Most of the price decreases were centered in the Coastal and East North Central regions, Freddie Mac noted. I’m not too surprised by the numbers, although I am surprised to see Nothaft avoid a discussion of where he thinks this is headed. We’re seeing slowing price momentum in most markets at this point, a trend that will by all indications steam into negative territory on a national level within the next four quarters. Remember, as I’m fond of pointing out to regular HW readers, we haven’t even begun to hit the worst part of the subprime resets just yet. We’ll get there around the middle of next year, and prices will move accordingly when that takes place.