Slower and Steadier: The New Norm

For at least the past three months, we've anticipated a slowdown in the rate of home-price appreciation. Recent data are beginning to point in that direction.

The latest reading of the S&P/Case-Shiller Home Price Index suggests some wind has been trimmed from the sails. In December, the 20-city composite index showed a 13.4% year-over-year price increase. It's an impressive rate, but compared to November, the year-over-year increase was actually 30-basis points lower.

A recent article from the Wall Street Journal also points to slower price growth. The Journal featured data from housing-research firm Zelman & Associates. According to Zelman, land prices are cooling. A survey of builders, brokers, and developers in 55 major markets found that prices grew 2.9% in the fourth quarter of 2013 compared to the fourth quarter of 2012. Going back to the first quarter of 2013, prices were increasing at a more torrid 6.8% pace year over year. Land prices are obviously predicated on home prices.

Given the latest price data, we shouldn't be surprised that the median price of an existing home fell 4.5% to $188,900 in January, according to the NAR . As for new homes, the median price fell 2.2% to 260,100. Price growth in new home sales have actually reverted to a more normalized rate. After posting a double-digit, year-over-year price gain last year, the gain has fallen to 3.4%, according to the Census Bureau.

The good news for new homes is that sales continue to rise, with January posting a strong 9.6% increase to 468,000 units on an annualized basis. Existing home sales, on the other hand, continue to struggle, with sales falling 5.1% for the month.

We surmise that by the end of 2014, we'll see year-over-year price gains in the 3%-to-4% range, which better calibrates with long-term economic reality. Our outlook is somewhat corroborated by a new report published by the Demand Institute, a subsidiary of the Conference Board, which expects annual price gains of 2.1% from 2015 through 2018.

Of course, we all know that real estate markets are local markets. National averages frequently hold little relevance for any particular market, and especially for any particular segment of that market. But it's reasonable to expect slower price growth, and possibly even negative growth in the hottest markets since the 2008-2009 recession.

Local mortgage rates, in contrast, are more attuned to the natural averages. Here, rates remain steady.'s survey shows the 30-year fixed-rate loan averaged 4.48% over the past week, which is about where it was the week before. Freddie Mac's survey shows a slight increase, with the rate on the 30-year loan rising to 4.37%.

Mortgage rates are muted, and still very reasonable, which is something we have to continually remind people. Ten years ago, 6%-and-higher on the 30-year loan was the norm. A 4.5% rate on the same loan is a bargain in comparison.

 Courtesy of Jessica Regan.

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