(Source: S&P/Case-Shiller Home Prices Indices’ 20-City Composite Index)
The rise in home prices in 20 cities appears to be slowing, with only a slight gain in January.
The 20-City Composite Index showed seasonally adjusted monthly growth of 0.8 percent, according to S&P/Case-Shiller Home Prices Indices March 25.
Home prices in 20 cities rose 13.2 percent in 2013, suggesting the housing market was recovering well. But economists were not sure whether the market would maintain the same pace in 2014.
“The overall economy has slowed, so home prices growth has slowed,” said Steven Ricchiuto, chief economist at Mizuho Securities USA. He added that the rate of the increase would not be as high as in 2013, as personal income gains were slowing and the Federal Reserve’s interest rate was almost unchanged.
The housing market is usually weak in winter and spring, said Robert Shiller, co-founder of Case-Shiller Index. He said the rate of growth was good but seemed to be a little slower than last year.
Shiller said investors played a bigger part than individual homebuyers in driving up prices, as the New York Federal Reserve’s homebuyers survey showed their one-year-expectation rose only 4 percent. While the momentum in home prices is cooling, those investors might lose their interest in lower prices, Shiller said, adding that they might be driven away, which will probably weaken the housing market even more.
The slowing pace would be a good sign for homebuyers entering the spring selling season, according to Maury Harris, an economist at UBS Securities. If the housing market “takes a breather,” Harris said, homes may be more affordable for more people.
Some cities badly hit by the nationwide foreclosure crisis showed strong gains in last 12 months. After a year-over-year gain of more than 20 percent, Las Vegas’ home prices rose 1.2 percent in January, according to Case/Shiller.
“We still had demand from buyers and inventory was still tight,” said Heidi Kasama, director of Greater Las Vegas Association of Realtors.
Distressed sales in Las Vegas, like short sales and foreclosures, declined from 70 percent of total home sales to 26 percent in last 12 months, according to Kasama, which may be a good sign for 2014. Short sales continued to diminish in February, from 17 percent in the previous month to 14 percent of all existing local home sales.
A decrease in distressed properties in Las Vegas could continue to drive up home prices, though the rate of the increase would not bring the prices back to their mid-2006 peak.
The low inventory is another dominant factor that still contributes to rising home prices, according to Gary Painter, director of research at University of Southern California Lusk Center for Real Estate.
In cities like Chicago where the inventory is low, increasing demand has driven up home prices. Sam Shaffer, a Chicago real estate agent who has seen a year-over-year increase rate of 10 percent, said he believed local home prices would continue to increase after rising at a seasonally adjusted rate of 0.4 percent in January.
“The Chicago real estate market is on fire,” Shaffer said, adding that supply and demand in the market, combined with low interest rates, may bring prices back to their mid-2006 peak sooner or later.