US home price growth slows in August. Time to buy?
For potential first time homebuyers, there are far worse times to take the plunge than this. Prices are slowing down, the job market continues its rebound, and interest rates are at historic lows. But will current economic conditions let them take advantage?
Home prices rose at a weaker year-over-year pace in August, according Case-Shiller’s 10- and 20-city home price indices, released Tuesday. Prices in 20 cities rose 5.6 percent from August 2013; On a seasonally adjusted basis, the 20-city index fell 0.1 percent in August, while the 10-city index fell 0.1 percent.
Only two cites – Las Vegas and Miami – saw double-digit year-over-year price increases. Eight cities saw price gains since July; 12 had prices fall.
It was the eighth straight month of slowing price gains. The two previous years, when the housing market was coming back from the bottom, double-digit year-over-year price jumps were the norm. “The rate of gain has decelerated markedly from a peak of 13.7 percent in November 2013 to a current 5.6 percent,” MFR, Inc., economist Joshua Shapiro writes in an e-mailed analysis. “We believe this trend will continue, and that before too long [year-over-year] rates of change will be negligible and that overall price levels will have likewise flattened out."
The price slowdown is contributing to a housing market that should look more and more appetizing to prospective buyers. Interest rates will remain at historically low levels for the time being, at least until well into next year. All-cash buyers and investors, which propelled the housing market in the early part of is recovery, are starting to retreat, and families and first-time buyers are beginning to step up their purchases.
Indeed, some good market fundamentals are contributing to the price slowdown, writes IHS Global Insight economist Stephanie Karol in an e-mailed analysis. “In some cities, additional construction has helped rein in price appreciation,” she writes. “In others, homeowners who have been unable to downsize or relocate for several years are responding to increased demand by listing their homes—and the pace of existing home sales has picked up noticeably since the beginning of 2014. While home values have not regained 2005 levels in any city except for Denver and Dallas, they have reached fall-2004 levels nationwide; this may be enough to satisfy many homeowners.”
Despite the friendlier market, buyers still face formidable obstacles to home ownership. Lending standards remain tight; wages remain depressed even as other costs of living, including rent and food prices, continue to rise. The rate of homeownership in the US is at its lowest level since 1995, in part because of such headwinds, according to the Census Bureau.
Still, consumers are feeling better about their buying power. Consumer confidence surged in October to a seven-year high, thanks in part to falling gas prices and cheerier job prospects, according to a report released Tuesday by the Conference Board. Many economists expect this to lead to more spending for the upcoming holiday shopping season; whether it can translate to bigger purchases, like houses, remains a question mark.
