The housing market’s recovery slowed at the end of 2013 as U.S. home prices nationwide dropped slightly.
The National Home Price Index declined 0.3 percent in the fourth quarter, according to S&P/Case-Shiller Home Price Indices, released by S&P Dow Jones Indices Feb. 25.
The 10-City and 20-City Composites increased 13.6 percent and 13.4 percent respectively in 2013, according to S&P/Case-Shiller. All 20 cities showed year-over-year increase.
Average home prices across the country in the fourth quarter rose 11.3 percent over the fourth year of 2012, showing they are back to their mid-2004 levels.
“The market is leveling off,” said Peter Morici, professor of business at the University of Maryland. “The housing market will contribute to the continuing economic recovery, which will run maybe 2.5 percent a year,” he added. “But it’s not going to power forward some kind of profound growth.”
Declining foreclosures, foreign investors and slowly rising prices since the 2008 recession drove up housing prices in 2013. Foreclosure filings–default notices, scheduled auctions and bank repossessions — declined 26 percent from 2012, according to RealtyTrac, a foreclosure index. Foreign investors, who usually pay cash, say the market is profitable.
Despite gains in recent years, the 10-City and 20-City home prices are still 20 percent below their 2006 peak.
Housing sales dropped 5.1 percent to a seasonally adjusted annual rate of 4.62 million in January, from 4.87 million in December, according to the report released Feb.21 by the National Association of Realtors. Michael Wolf, an economist at Wells Fargo Securities Economics Group, said increasing mortgage rates have slowed demand.
“It raises their low cost, and people get pushed out of the market or can no longer afford the house,” Wolf said, indicating that people at the lower end are much more vulnerable to floating mortgage rates.
The 30-year fixed mortgage rate hit 4.0 percent in June after floating in the range of 3.0 to 3.9 percent for more than a year, according to Zillow Mortgage Marketplace.
While higher mortgage rates are not a good sign for median-income buyers in the United States, they attract more investors from other countries. Michael Bellings, a real estate agent at Vanguard Properties in San Francisco, said the housing market there was less depressed than a year ago.
Though housing prices nationwide dropped slightly in December, prices in San Francisco showed growth. San Francisco is also among 20 cities that showed year-over-year increases, according to S&P/Case-Shiller, with growth of more than 20 percent.
Bellings noted double-digit increases in prices and values in San Francisco. Working now for a foreign potential buyer, he said international investors buy 25 to 35 percent of local homes.
“They tend not to value what the house looks like or even how big is it,” Bellings said. “They simply care about the numbers and return on investment.”