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Freddie Mac (NYSE: FRE) announced today that its quarterly Conventional Mortgage Home Price Index (CMHPI) found that home values rose 10.0 percent, on an annual basis, from the second quarter of 2003 through the second quarter of 2004, up from the prior year (second quarter of 2002 to second quarter of 2003) when the growth rate was 6.5 percent.

"The large annual increase in house prices in the second quarter Conventional Mortgage Home Price Index (CMHPI) was a result of record low interest rates in June of 2003 and near-record lows in mortgage rates in March of this year," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "After three years of declining mortgage rates and big jobs gains earlier in the year, housing demand is as strong as we've ever seen it. The housing market should remain strong for the next several quarters, but may begin to slow from record levels as interest rates start to gradually rise."

"The first quarter of the year was great for the housing market," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "Low and declining mortgage rates over the quarter that bottomed out in March at 5.4 percent for 30-year, fixed rate mortgages, pushed homes sales to a healthy 7.40 million units (annualized rate) and this strong housing demand helped keep house price appreciation well ahead of overall inflation."

The second quarter's quarterly growth rates show an increase from the previous quarter values 50 percent increase over the first quarter's rate. Nationally, home values increased by an annualized rate of 9.8 percent in the second quarter of 2004. The first quarter 2004 annualized growth rate was revised upward to 6.5 percent.

"Mortgage rates in March were around 5.4 percent for 30-year, fixed-rate mortgages, pushing total homes sales to a record quarterly pace of 8.08 million units (annualized rate) and this strong housing demand sent house-price appreciation way up. The quarterly growth rates in the first quarter are in line with the general trends over the past two years with the exception of the fourth quarter of 2003, which is very much an anomaly," said Cutts. "Quarterly data generally are more volatile, but the fourth quarter values seem to be very affected by biases created by the large volume of refinance activity in 2002 and earlier in the year. Normally we expect home prices nationally to grow about 2 to 3 percentage points faster than overall inflation due to home improvements and competition for land. The first quarter 2004 values are following this general pattern. These low rates compounded the already strong seasonal effect that we get in the spring from home buyers and sellers who are in the market when the flowers are in bloom and the weather is nice."

For the fourth quarter in a row, the Pacific states continued to lead the nation in annual house-price appreciation, growing at an surprisingvery strong annual rate of 17.1 percent for the year. The Middle Atlantic states were, once again, second in growth with an annual appreciation rate of 12.7 percent. The New England states came in third in growth gains, with an annual home-price growth rate of 11.7 percent. Following New England, the South Atlantic states posted an increase of 11.4 percent, trailed by the Mountain states withwith an increase of 8.0 percent.

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