Home price gains continue to cool off

The home price growth in August was the smallest in two years. Could the gradual slowdown be a sign that the market is returning to normal and that there is no housing bubble?

The annual growth in U.S. home sales prices continues to grow more slowly in August, according to a report released by S&P/Case-Shiller.

The increase was the smallest since November 2012 and is another indication that lending standards need to be loosened, said David Shirmeyer, CEO at Sigma Research. "The less investor buying has slowed price gains while the Dodd/Frank legislation six years ago continues to eliminate first-time buyers," he added.

The gradual slowdown is also a sign that the market is returning to normal and offers further evidence that there is no housing bubble, said Zillow Chief Economist Stan Humphries. “We always knew these market conditions couldn’t last, and it’s good to see us now on a more natural and sustained glide path down toward more normal market conditions."

 Data through August continues to show a deceleration in home price gains. The 10-city composite gained 5.5% year-over-year and the 20-city 5.6%, both down from the 6.7% reported for July. The national index gained 5.1% annually in August compared to 5.6% in July. 
 
Detroit leads housing price gains, while California sees a decline

On a monthly basis, the National Index and Composite Indices showed a slight increase of 0.2% for the month of August.  Detroit led the cities with the gain of 0.8%, followed by Dallas, Denver and Las Vegas at 0.5%.  Gains in those cities were offset by a decline of 0.4% in San Francisco followed by declines of 0.1% in Charlotte, North Carolina and San Diego.
 
"The deceleration in home prices continues," said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.  "The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities -- Los Angeles, San Francisco and San Diego.  Despite the weaker year-over-year numbers, home prices are still showing an overall increase, as the National Index increased for its eighth consecutive month."
 
The large extent of slower increases is seen in the annual figures with all 20 cities; the two composites and the national index all revealing lower numbers than last month. Las Vegas continues to see a sharp deceleration in their annual home prices with a 10.1% annual return, down just below 3% from last month.  Miami is now leading the cities with a 10.5% year-over-year return.  San Francisco, which has shown double-digit annual gains since November 2012, posted an annual return of 9% in August, according to Blitzer.
 
"Despite softer price data, other housing data perked up. September figures for housing starts, permits and sales of existing homes were all up. New home sales and builders' confidence were weaker," he said.  "Continued labor market gains, low interest rates and slower increases in home prices should support further improvements in housing." 

 National home prices back to spring 2005 levels
 
As of August, average home prices across the United States are back to their levels posted in the spring of 2005.  The National Index was up 0.2% in August 2014 and 5.1% above August 2013.

Average home prices for the MSAs within the 10-city and 20-city composites were back to their autumn 2004 levels in August.  Measured from their June/July 2006 peaks, the peak-to-current decline for both composites is around 16-17%. The recovery from the March 2012 lows is 28.8% and 29.5% for the 10-city and 20-city composites, according to S&P/Case-Shiller.
 
All cities except Cleveland saw their annual gains decelerate.  Las Vegas showed the most weakness in its year-over-year return; it went from 12.8% in July to 10.1% in August.  As a result, Las Vegas lost its leadership position as it moved to second place behind Miami with a 10.5% year-over-year gain.  San Francisco posted 9% in August, down from its double-digit return of 10.5% in July.
 
All cities except Boston and Detroit posted lower monthly returns in August compared their returns reported for July. San Francisco showed its largest decline since February 2012; it was the only city that showed a negative monthly return two months in a row from -0.3% in July to -0.4% in August.
 
Since its launch in early 2006, the S&P/Case-Shiller Home Price Indices have published, and the markets have followed and reported on, the non-seasonally adjusted data set used in the headline indices. For analytical purposes, S&P Dow Jones Indices publishes a seasonally adjusted data set covered in the headline indices, as well as for the 17 of 20 markets with tiered price indices and the five condo markets that are tracked.
 
A summary of the monthly changes for the metro areas can be found here.

Click here to view Zillow's third quarter housing report.