Home prices in 20 U.S. cities advanced at a slower pace in the 12 months through September as the housing market continued to make gradual progress.
The S&P/Case-Shiller index of property values increased 4.9% from September 2013, the smallest gain since October 2012, after rising 5.6% in the year ended in August, the group reported today in New York. Nationwide, prices rose 4.8% after a 5.1% year-to-year increase a month earlier.
Housing prices have cooled this year as more properties are put up for sale and investors retreat to the market’s sidelines. Slower appreciation will probably help foster a pickup in homeownership, particularly among first-time buyers and people having trouble obtaining credit, once wage growth becomes more pronounced.
“This is actually a healthier, slow-but-steady improvement in the housing market,” Lindsey Piegza, chief economist at Sterne Agee & Leach Inc. in Chicago, said before the report. “The last variable, arguably the most important variable, that we need to get into place is wages. We need to see that income growth in order to ensure we’ll have continued positive new demand in 2015, 2016 and beyond.”
The median forecast of 31 economists surveyed by Bloomberg projected a 4.6% gain in the 12 months ended in September. Estimates ranged from 4.2% to 5.2%.
Another report confirmed prices are decelerating. Property values were little changed in September, the weakest reading since November 2013, according to figures from the Federal Housing Finance Agency. In the third quarter, prices rose 0.9% after a 1% gain.
Seasonally adjusted, prices in 20 cities increased 0.3% in September, matching the Bloomberg survey median, after falling 0.1% the prior month. Unadjusted prices were little changed.
All 20 cities in the index showed a year-over-year gain, led by a 10.3% rise in Miami and a 9.1% advance in Las Vegas. Cleveland showed the smallest year-over-year increase, with prices rising 0.8%.
The year-over-year gauge, based on records dating back to 2001, is a better indicator of trends in prices than the month- to-month data, the group has said. The panel includes Karl Case and Robert Shiller, economists who created the index.
“With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better,” David Blitzer, chairman of the S&P index committee, said in a statement.
Property transactions have been picking up. Sales of previously owned homes reached a one-year high of 5.26 million at an annualized pace in October, the National Association of Realtors reported last week. It was the fifth consecutive month that the rate of purchases topped 5 million.
The gains are coming without much help from those making their first-ever home purchase. The share of previously owned properties sold to first-time buyers has held below 30% in 18 of the last 19 months, the trade group said. Historically, entry-level buyers account for about 40% of the market.
For those who can obtain credit, borrowing costs are holding close to historic lows. The average 30-year, fixed-rate mortgage was 3.99% in the week ended Nov. 20, down from 4.22% a year ago, according to data from Freddie Mac in McLean, Virginia. In November 2012, the rate fell to 3.31%, the lowest since records began in 1971.
While the housing recovery has been held back by stringent mortgage underwriting, demographic trends bode well for residential real estate as millennials and other entry-level buyers enter the market, said Allan Merrill, chief executive officer of Beazer Homes USA Inc., an Atlanta-based builder that targets first-time and move-up buyers.
“We’re in the midst of a housing recovery, but it doesn’t always feel that way,” Merrill said on a Nov. 12 earnings call. “The fact is, this recovery hasn’t yet created a level of new home activity anyone anticipated and we’re prepared for that environment. But, I think it would be short sighted to give up on expectations for greater volumes in the new-home market in the coming years. The fundamentals, particularly for first-time homebuyers, are just too strong.”
The U.S. requires between 1.6 million and 1.9 million new units a year to accommodate population growth and new households, which are the largest drivers of demand, according to the Joint Center for Housing Studies at Harvard University.