Home prices in 20 U.S. cities rose at a slower pace in the year ended in June as declining affordability and weak wage gains kept appreciation in check.
The S&P/Case-Shiller index of property values increased 8.1% from June 2013, the smallest 12-month gain since January 2013, the group reported today in New York.
Price gains are slowing as more houses are coming up for sale and investors retreat to the sidelines. That, combined with an improving job market, could put homeownership within reach of more Americans grappling with disappointing wage growth and strict lending rules.
“We’re seeing more inventories coming on line, which is putting downward pressure on prices,” Anika Khan, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “In general, we have seen prices rise at a faster pace than the fundamentals would call for. There’s a normalization happening.”
The median forecast of 27 economists surveyed by Bloomberg projected an 8.3% gain in the 12 months ended in June. Estimates ranged from 7.7% to 9%.
Another report confirmed price gains are decelerating. Property values rose 0.8% in the second quarter from the previous three months after increasing 1.3% at the start of the year, according to figures from the Federal Housing Finance Agency.
Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index (CME:SPU14) maturing in September climbed 0.1% to 1,997.2 at 9:09 a.m. in New York amid reports about corporate mergers.
Seasonally adjusted, prices in the 20-city Case-Shiller index dropped 0.2% in June from the prior month, worse than the unchanged reading that was the median forecast in the Bloomberg survey. Unadjusted prices climbed 1%.
All 20 cities in the index showed a year-over-year gain, led by a 15.2% climb in Las Vegas and a 12.9% advance in San Francisco. Cleveland showed the smallest year- over-year increase, with prices rising 0.8%.
Today’s report included national figures that are now being reported on a monthly basis. U.S. prices dropped 0.1% in June from the prior month after adjusting for seasonal variations, the report showed. They were up 6.2% from June 2013.
The year-over-year gauge for the 20 cities, based on records dating back to 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Residential real estate has yet to bounce back fully from a cold and wet winter that slowed sales early this year. Contracts on new homes fell unexpectedly in July to a 412,000 annualized pace, their weakest level since March, the Commerce Department reported yesterday.
Still, there are signs of progress. Construction rebounded last month, with starts climbing 15.7% to a 1.09 million annualized rate. Resales of existing homes also picked up, increasing to a 5.15 million pace, the best showing since September, according to the National Association of Realtors.
Retailers with fortunes tied closely to the housing market, including Home Depot Inc. and Lowe’s Cos., see plenty of room for improvement. Furnishings merchant Kirkland’s Inc. last week lowered its outlook for the year, with Chief Executive Officer Robert Alderson calling the economic recovery “erratic” and “limp.”
“We would still prefer a better jobs environment and a housing market to feel more comfortable with the state of the consumer,” Alderson said on an Aug. 21 earnings call for the Nashville, Tennessee-based company.
“In a country mired in political stalemate and totally lacking focus on economic growth, it’s exceedingly difficult to expect to return to historic levels of economic growth or a return of sustained optimism to nurture a healthy jobs market and a growing housing market,” Alderson said.
Cheaper borrowing costs are helping. The average rate on a 30-year, fixed mortgage was 4.1% in the week ended Aug. 21, down from 4.53% at the start of January, according to Freddie Mac in McLean, Virginia.