HOME PRICE GROWTH SLOWS TO LESS THAN FIVE PERCENT IN SECOND QUARTER

Slowest Growth Rate Since the Fourth Quarter of 1999

McLean, VA – Freddie Mac (NYSE: FRE) announced today that its quarterly national Conventional Mortgage Home Price Index (CMHPI) rose 4.9 percent in the second quarter 2006 on an annualized basis, down from a revised first quarter 2006 annualized rate of 9.1 percent.

"Thirty-year fixed mortgage rates rose nearly one-half of a percentage point during the second quarter and rates on 1-year adjustable-rate mortgages went up a third of a percentage point according to the Primary Mortgage Market Survey®," said Frank Nothaft, Freddie Mac vice president and chief economist. "Housing is the most interest-rate sensitive sector of the economy and we are seeing the effects now of both rising rates during the quarter as well as increases that came before.

"Although the slow down in house-price appreciation has been quite sudden, going from an annualized 13 percent in the fourth quarter of 2005 to less than half of that rate just six months later, there is still strength in the housing market. Single-family house sales through the first half of the year averaged 7.03 million units at an annual rate, on track to make 2006 the third best year for home sales. Similarly, one-family housing starts averaged an annualized rate of 1.64 million units through June, just a little under the record pace set in 2005. As the full impact of two years of rising short-term interest rates is felt in the economy, the slowdown in the housing market could become more abrupt over the next year.

"As the market moves from one of unsustainably high appreciation where sellers have all the power to a buyer’s market we expect to see homes sit longer on the market, with sellers more willing to make non-price concessions. These concessions can take several different forms, such as repairs, conveyances, or contributions towards closing costs to attract buyers. The result is that the house prices we observe tend to be sticky on the downside."

Nationally, home values increased 10.2 percent from the second quarter of 2005 through the second quarter of 2006, down from the 13.9 percent annual growth seen over the four quarters ended in June 2005.

The East South Central states showed the highest level of home-value appreciation in the U.S., with quarterly appreciation of 8.3 percent at an annualized rate during the second quarter, followed by the West South Central states, which showed a gain of 7.8 percent. The Mountain states came next, with gains of 6.4 percent. The Middle Atlantic states experienced average price growth of 6.2 percent. The Pacific states posted an average appreciation rate of 5.8 percent while the South Atlantic division saw an increase of 5.7 percent and the West North Central region had gains of 2.5 percent. The East North Central states had the second slowest annual appreciation of 1.2 percent annually. Finally, the New England states were last with a growth rate of only 0.8 percent.

"Higher energy prices have created a new boom in many towns in the East and West South Central States that were devastated in the 1980s when oil prices came crashing down," noted Amy Crews Cutts, Freddie Mac deputy chief economist. "Midland and Odessa, Texas, both saw annualized growth rates in excess of 35 percent in the second quarter and if natural gas prices (now the dominant part of their mining extraction industries) continue to stay high, we can expect this pressure on house prices there to continue.

"Perhaps more surprising than the run up in prices where energy markets have boomed is the sudden slump in the Northeast. Massachusetts, Maine and New Hampshire all experienced declines in home prices during the second quarter but are still up year-over-year. Some of the retrenchment may be coming from a fall in demand for second homes – Maine has the highest share of second homes in the country – or the start of a correction, particularly in the Boston area, where economic fundamentals could not fully support the high rate of appreciation we saw there over the past few years.

"We continue to see weakness in the Great Lakes region impacted by manufacturing job losses. Eleven metropolitan areas registered year-over-year declines in average home values, with nine of these markets in Michigan, Indiana and Ohio; the largest metropolitan area showing a price decline was Detroit, down 0.7 percent over the 2Q2005 to 2Q2006 span."

The Conventional Mortgage Home Price Index shows the following regional performances:

East South Central Division (AL, KY, MS, TN): increased 2.0 percent (8.3 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 8.1 percent, and during the last five years, home values increased 29.8 percent.
West South Central Division (AR, LA, OK, TX): increased 1.9 percent (7.8 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 8.1 percent, and during the last five years, home values increased 28.8 percent.
Mountain Division (AZ, CO, ID, MT, NM, NV, UT, WY): increased 1.6 percent (6.4 percent, annualized) in the second quarter of 2006. In the last 12 months, home values increased 13.8 percent; during the last five years, home values increased 54.7 percent.
Middle Atlantic Division (NJ, NY, PA): increased 1.5 percent (6.2 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 11.8 percent, and during the last five years, home values increased 76.3 percent.
Pacific Division (AK, CA, HI, OR, WA): increased 1.4 percent (5.8 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 14.1 percent, and during the last five years, home values have increased 95.4 percent.
South Atlantic Division (DC, DE, FL, GA, MD, NC, SC, VA, WV): increased 1.4 percent (5.7 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 14.1 percent, and during the last five years, home values increased 71.4 percent
West North Central Division (IA, KS, MN, MO, ND, NE, SD): increased 0.6 percent (2.5 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 4.8 percent; over the last five years, home values increased 36.0 percent.
East North Central Division (IL, IN, MI, OH, WI): increased 0.3 percent (1.2 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 4.2 percent, and during the last five years, home values increased 28.8 percent.
New England Division (CT, MA, ME, NH, RI, VT): increased 0.2 percent (0.8 percent, annualized) in the second quarter of 2006. Over the last 12 months, home values increased 5.9 percent, and during the last five years, home values increased 64.8 percent.

Jointly developed by Freddie Mac and Fannie Mae and first published by Freddie Mac starting in 1994, the Conventional Mortgage Home Price Index features indexes for the nine Census divisions as well as a national index. The national index is the average of the nine divisional indexes weighted by the distribution of one-unit detached, single-family structures in each Census division.

Unlike other home price indexes based on mean or median values of homes sold during a given period, the Conventional Mortgage Home Price Index is constructed, using regression techniques, from observations of actual sales prices or appraised values of the same homes over time. The street addresses of properties that serve as collateral for mortgages funded by the two secondary mortgage market firms are first processed using software certified by the United States Postal Service to create a uniform address format and are then matched to identify consecutive transactions on the same property. There are currently 31.6 million records in the repeat-transactions database used to construct the Conventional Mortgage Home Price Index – this database includes transactions on one-unit detached and single-family townhome properties serving as collateral on loans originated through the second quarter of 2006 and purchased by Freddie Mac and Fannie Mae by July 31, 2006.

Freddie Mac publishes the Conventional Mortgage Home Price Index each quarter. Index values and growth rates for the nation as a whole as well as for the nine Census divisions, the 50 states and the District of Columbia, and 390 metropolitan statistical areas (MSAs) and metropolitan divisions can be found on Freddie Mac’s web site, www.freddiemac.com/finance/cmhpi/.

Freddie Mac is a stockholder-owned company established by Congress in 1970 to support homeownership and rental housing. Freddie Mac fulfills its mission by purchasing residential mortgages and mortgage-related securities, which it finances primarily by issuing mortgage-related securities and debt instruments in the capital markets. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than four million renters in America.

Conventional Mortgage Home Price Index

Q2 2006 Release

All Entries Are Percent Changes New England Middle Atlantic South Atlantic East South Central West South Central West North Central East North Central Mountain Pacific The United States

Quarterly Change
Q1 2006-Q2 2006
0.2

1.5

1.4

2.0

1.9

0.6

0.3

1.6

1.4

1.2

Annualized
Quarterly Change
Q1 2006-Q2 2006
0.8

6.2

5.7

8.3

7.8

2.5

1.2

6.4

5.8

4.9

Annual Change
Q2 2005-Q2 2006
5.9

11.8

14.1

8.1

8.1

4.8

4.2

13.8

14.1

10.2

5-Year Change
Q2 2001-Q2 2006
64.8

76.3

71.4

29.8

28.8

36.0

28.8

54.7

95.4

56.2

Annualized
5-Year Change
Q2 2001-Q2 2006
10.5

12.0

11.4

5.3

5.2

6.3

5.2

9.1

14.3

9.3

Send comments and questions to chief_economist@freddiemac.com

Although Freddie Mac attempts to provide reliable, useful information in this document, Freddie Mac does not guarantee that the information is accurate, current or suitable for any particular purpose. Estimates contained in this document are those of Freddie Mac currently and are subject to change without notice.

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