Case-Shiller: Home prices drop for third consecutive month

Buyers’ advantage as yearly price gains slow

March 25, 2014
Home prices declined in January for the third straight month, slowing the pace of year-over-year appreciation, according to the key 20-city S&P/Case-Shiller survey of home prices.

With the decline of -0.08% in January the index saw its longest consecutive streak of declines since March 2012. Economists rushed this morning to say the results do not mean there is a housing bubble and it is popping. Actually, they say, the opposite is true.

Month-on-month, U.S. home prices inched down 0.1% in January, matching expectations and after dipping 0.1% in the preceding month. Fully 12 of 20 tracked cities posting drops.

Year-over-year, prices increased 13.24%, a drop from the December year-over-year gain of 13.38%, indicating a general slowing of home price appreciation.

“You may not realize it given the eye-popping levels, but today’s Case-Shiller numbers actually do represent a bit of moderation for the venerable index. The real pace of gains is probably really half that being reported, but the big picture remains the same: the housing market is doing quite well,” said Zillow (Z) chief economist Stan Humphries. “We remain far from normal in terms of appreciation rates, negative equity rates and mortgage rates, but we’re getting there, and a slowdown in appreciation is welcome. As the busy spring home shopping season ramps up, potential buyers and sellers each have some things to look forward to. Buyers can generally expect a lot less competition from investors armed with cash offers, and modestly more homes to choose from; while sellers can still enjoy market dynamics tilted more towards them than to buyers.”

In a separate report with more adjusted numbers, the Federal Housing Finance Agencysaid that prices rose 0.5% in January. The FHFA home price data is based on mortgages sold or guaranteed by Fannie Mae and Freddie Mac, not broader sales.

“Home values increased significantly last year, up 20% or more in Southern California and Las Vegas. Las Vegas and San Francisco still have gains over 20% from the past year, and San Diego prices are going up. But in general, price increases continued to slow down in January,” said David Williams, vice president at RightStart Mortgage, based in Pasadena, Calif. “It doesn’t necessarily hurt the market that price growth slows down.  We’re still seeing some improvement, which shows a healthy market.The problem now is affordability for first-time homebuyers.”

Monday, Black Knight Financial Services offered its own breakdown of cities with the biggest gains and losses in home prices, close to being in line with the Case-Shiller index.

“Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains,” David Blitzer, chairman of the index committee, said.

“The housing recovery may have taken a breather due to the cold weather,” Blitzer said. “From the bottom in 2012, prices are up 23% and the housing market is showing signs of moving forward with more normal price increases.”

Including this month’s data, home prices clocked in at about 20% below the 2006 peak.

The National Association of Realtors reported March 20 that existing home sales slowed in February to the slowest rate since July 2012.

“Expectations and recent data point to continued home price gains for 2014. Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains,” the report states.

The Sunbelt showed the five highest monthly returns. Las Vegas saw an increase of 1.1% — attributable to a big bounce effect. Miami was up 0.7%.

San Diego saw its best gain since 2004, up 0.6%, while East Coast metros like New York and Washington, D.C. posted their own highest year-over-year gain since the housing peak in 2006.

“Institutional investors and all-cash buyers aren’t finding the same deals that were around last year,” Williams said. “Also, home prices after the New Year are historically lower than most months due to the hangover effect of holiday spending. The demand isn’t there. Potential homebuyers will start working on their taxes to determine their financial status before looking for a new home. Then there’s the snow that hit the Mid-Atlantic and Northeast, primarily on weekends, which didn’t help. The Midwest had a lot of snow, too. As for West Coast states, we’ll have to wait and see. The weather wasn’t as much of a problem as the fact that unemployment is still high among people who have reached the age of your typical first-time homebuyer.”

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