Home Prices Continue to Slow, Even Drop

Home price appreciation continued to slow this spring, with one report even suggesting that in many markets, home prices are dropping.

The S&P CoreLogic Case-Shiller Indices yesterday said its National Index reported a 3.5% gain in April, down from 3.7% in March. The 10-City Composite showed a 2.3% gain, up from 2.2% in March, while the 20-City Composite posted a 2.5% year-over-year gain, down from 2.6% the previous month.

In a separate report yesterday, Zillow Inc., Seattle, said U.S. home values fell for the second straight month in May, putting an emphatic end to 85 consecutive months of gains that had added nearly $80,000 in value to the median U.S. home.

S&P reported Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among the 20 cities it tracks. Las Vegas led with a 7.1% year-over-year price increase, followed by Phoenix at 6.0% and Tampa at 5.6% increase. Nine of the 20 cities reported greater price increases in the year ending April.

Month over month, before seasonal adjustment, the National Index posted an 0.9% increase in April; the 10-City and 20-City Composites both reported 0.8% increases. After seasonal adjustment, the National Index posted an 0.3% month-over-month increase in April; the 10-City Composite posted an 0.2% month-over-month increase, while the 20-City Composite did not report an increase. Nineteen of 20 cities reported increases before seasonal adjustment, while 14 of 20 cities reported increases after seasonal adjustment.

“Home price gains continued in a trend of broad-based moderation,” said Philip Murphy, Managing Director and Global Head of Index Governance with S&P Dow Jones Indices. “Perhaps the trend for the moment is toward normalization around the real long run average annual price increase.”

The report said as of April, average home prices for the MSAs within the 10-City and 20-City Composites are back to their winter 2007 levels.

Meanwhile, Zillow reported the typical U.S. home was worth $226,800 in May, down by 0.1% in March, the second consecutive monthly drop. On an annual basis, home value growth slowed to 5.4% in May, down from 7.5% a year ago.

The company’s monthly Real Estate Market Report noted home values also fell in April, ending a streak of 85 consecutive months of gains that added $78,500 in value to the median home. This trend held in 32 of the 35 largest markets in the U.S., with home values rising only in St. Louis and Phoenix, while remaining flat in Riverside, Calif.

Zillow said year-over-year appreciation, while still strong compared to historic levels, has slowed in each of the past five months, falling to 5.4% growth in May. A year ago, home values grew 7.5% annually. Indianapolis and Cincinnati are the only markets that have accelerated from last May, while San Jose, Calif., remains the lone market to have turned negative year-over-year, falling 5.7%.

Zillow Director of Economic Research Skylar Olsen said the slowdown isn’t such a bad thing for the housing market. “The current slowdown in home value appreciation is expected and comforting,” she said. “While the slowdown has been arguably abrupt, the soft declines over the past two months should not cause too much alarm. The aggressive pace of home values over the past several years was known to be unsustainable. Buyers simply couldn’t afford it, so prices are correcting.”

Olsen said the housing market is steadily returning to “normalcy”–something U.S. housing hasn’t seen in two decades–which will mean continued, but ever more moderate, volatility. “The significant drop in mortgage rates, as well as renewed rent growth, may help return U.S. housing values to positive appreciation earlier than otherwise,” she said.

Zillow said while home value growth has slowed, rent prices are accelerating. The median monthly rent in the U.S. grew for the seventh month in a row, rising 2.7% to $1,479. Rents are growing faster now than a year ago in 28 of the top 35 markets, led by Las Vegas at 8.9%.

The report also noted inventory fell 0.5% year-over-year in the U.S., the third straight month of declines after inventory rose in January and February. The most significant drop was in Kansas City, which saw 27.8% fewer homes for sale than this time last year. Inventory growth was largest in Las Vegas and San Jose, both of which among the markets where home value growth has slowed the most in the past year.