The strong gains in home prices of the previous two years are cooling down, according to a closely watched gauge released Tuesday, and many economists say that’s a good thing for potential home buyers who are struggling to break into the market.
The Standard & Poor’s/Case-Shiller index showed that prices of previously owned, single family homes rose 0.2 percent nationally in the first quarter from the previous quarter on a non-seasonally-adjusted basis, and 10.3 percent year-over-year.
The gauge broke out prices for the nation’s 20 major metropolitan areas in March and found that home values rose in every region except New York, where prices fell 0.3 percent month-over-month. The San Francisco area posted the largest gain at 2.4 percent, followed by Seattle at 1.9 percent. The Washington region, where prices climbed 1.2 percent, ranked much lower on the list and tied with Los Angeles and Dallas.
But at the national and local levels, the year-over-year gains slowed substantially, the authors of the study said. Thirteen regions saw annual price changes moderate in March, said David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices.
Several economists said the slowdown could help the housing market, which has suffered considerable setbacks in recent months. Sales of existing homes, which make up the bulk of buying activity, fell nearly 7 percent in April from a year ago. Higher prices, combined with a rise in mortgage rates and tight lending standards, are pushing some potential buyers out of the market.
Among them: the all-important first-time home buyers, who make up about 30 percent of purchases, less than the historical norm, according to the National Association of Realtors. Mortgage applications are down by about 16 percent from a year ago and continue to bounce around at 15-year lows, the group said.
Investors who helped turbo-charge prices are also retrenching. When the housing market hit bottom in late 2011, investors bought massive amounts of foreclosures and other distressed properties at fire-sale prices. Their purchases helped clear the excess supply of homes in some of the hardest-hit markets and boost home values there.
But the gains are unsustainable, in part because they’re outpacing income growth, housing experts said. In the Las Vegas region, which was teeming with foreclosures, prices rose more than 20 percent in March from a year ago, Case-Shiller numbers show.
“If we had another year or two of 20 [percent] plus appreciation rates, that would not be a good thing at all,” said Michael Larson, an analyst with Weiss Research. “It would price people out of the market.”
The Case-Shiller index measures repeat sales of single-family homes and reflects a rolling three-month average, so the March data capture transactions that closed in January and February as well. The group’s 20-city index rose 0.9 percent in March from February and 12.4 percent from a year earlier.
The National Association of Realtors called the numbers “outdated” now that June is days away. On Tuesday, the Realtor group said its own data show a 5.2 percent price gain in April from a year ago. Many housing experts predict single-digit price growth for the year.