Soft home prices equal a healthier market
While some borrowers might pull out of the housing market at the sight of the the slowdown in home prices, market experts are cautioning consumers not to slam on the housing brakes just yet. Home prices only increased from June to July by 0.6%, Lender Processing Servicesrevealed Monday in its U.S. Home Price Index.
However, from last year, July prices soared 8.7% above 2012 levels, the company said.
The report is the result of a survey of July transactions from more than 18,500 U.S. ZIP codes.
Last week’s housing data points to positive signs in the housing market. But when taking a closer look, the market posted mixed views.
For instance, housing starts were up in August, but only due to July starts being revised down, which means housing may be flattening.
On the reverse, existing-home sales came in at a recovery best, hitting an annual rate of 5.480 million in August, well above market consensus.
Earlier this year home prices were rising at an unsustainably fast pace, so it’s important to remember that even with the recent modest price slowdown, prices are still rising at more than a 10% annualized rate, explainedTrulia chief economist and vice president of analytics Jed Kolko.
“Our Bubble Watch metric shows that price levels nationally are undervalued by 5%, which means only small further price gains are needed to get prices national back at normal historical levels,” Kolko stated.
He continued, “We are not at risk of a bubble today, but if prices rose 10% a year for the next three years, we’d all be calling bubble.”
On a similar note, National Association of Realtors chief economist Jed Smith is confident the slowdown is healthy for the market so housing does not hit a bubble.
“It’s the normal market reaction to getting back to a normal market,” Smith explained.
The majority of the country continues to remain affordable, with the average home price coming in at $231,000, up 8.7% from year-ago levels — only 14.7% from the June 2006 peak level of $270,000, according to LPS.
All five of the largest states and metropolitan areas saw the pace of price growth decrease month-over-month.
California experienced the most marked change, with the pace of growth down to 0.5% in July from 1.6% in June.
Additionally, Los Angeles posted the biggest drop, with growth down 0.3% in July compared to 1.2% in June, respectively.
On the reverse side, Texas posted an impressive uptick in home prices.
Of the 40 largest metro areas, Austin, Dallas, Houston and San Antonio continued their upward trajectory, marking new home price highs in July.
The overall point is that while data seems to fluctuate, the majority of the information concludes that the housing recovery is still a local phenomenon.
Going forward, home prices will continue to slow for three reasons: more housing inventory, higher prices are turning investors off and rising mortgage rates.
“Rising rates is probably the least important of the three reasons past trends show that prices tend not to suffer as much as mortgage rates rise,” Kolko said.
He concluded, “Other factors, like a slowly strengthening economy and expanding mortgage credit, should give prices a tailwind and prevent them from slowing sharply.”