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Home price momentum fades in the stretch

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Home price momentum, if it was ever self-driven, is fading on several indices.

December home prices marked the second consecutive month of decline, dropping -0.08% after a -0.05% drop for November, according to the S&P/Case-Shiller Home Price Index.

The 20-city composite index saw an annual increase of 13.42%, and was the third month in a row of declines in annual house prices. The Case Shiller index is delayed by two months.

Notably, Case-Shiller did not blame the performance on the weather.

“Recent economic reports suggest a bleaker picture for housing. Existing home sales fell 5.1% in January from December to the slowest pace in over a year. Permits for new residential construction and housing starts were both down and below expectations,” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Some of the weakness reflects the cold weather in much of the country. However, higher home prices and mortgage rates are taking a toll on affordability. Mortgage default rates, as shown by the S&P/Experian Consumer Credit Default Index, are back to their pre-crisis levels but bank lending standards remain strict.”

In December, the 10-city composite remained relatively unchanged while the 20-city composite showed its second consecutive monthly decline of 0.1%.Year-over-year, the 10-city and 20-city composites posted gains of 13.6% and 13.4%, approximately 30 basis points lower than their November rates.

Chicago showed its highest year-over-year return since December 1988. Dallas set a new peak and posted its largest annual gain since its inception in 2000. Denver declined 0.1% and is now 0.7% below its all-time index level high set in September 2013

 “The S&P/Case-Shiller Home Price Index ended its best year since 2005,” Blitzer said. “However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over. Year-over-year values for the two monthly composites weakened and the quarterly National Index barely improved. The seasonally adjusted data also exhibit some softness and loss of momentum.”

Zillow economists noted the slowdown does not look like an aberration.

“December capped an undeniably great year in housing in 2013, though it definitely was not as strong as today’s Case-Shiller data indicates. Less distorted indices show national appreciation ending the year at roughly half the rate today’s data shows, which is still nothing to sneeze at,” said Zillow chief economist Stan Humphries. “But toward the end of the year, the market’s robust bounce off the bottom began to inevitably tail off, and that slowing momentum has carried over into the beginning of this year.

“After a long winter, the market is gearing up for a spring home shopping season that should be a bit smoother for buyers, with less investor competition and marginally more inventory. Looking further ahead, the market should continue its slow march back to normal, as annual appreciation rates fall to more sustainable levels around 3 percent, mortgage interest rates climb to levels closer to historic norms and negative equity continues to recede,” he said.

Also released this morning was the Federal Housing Finance Administration home price report where growth rates are also solid but slowing slightly. Rising home prices have been a key factor holding down home sales and now appear to be correcting.

Home prices, according to the FHFA rebounded 0.8% in December after easing 0.1% the month before. But excluding some monthly volatility, the trend definitely has been upward. Prices have risen on a quarterly basis for ten quarterly in a row. The December increase topped expectations for a 0.3% monthly boost.

Five Census divisions posted increases, one was flat, and two declined.

On a year-ago basis, FHFA home prices for the U.S. were up 7.7% versus 7.3% in November. Rising home prices have helped support consumer confidence as home equity is returning, albeit moderately.

The Black Knight Financial Services home price index, which combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices, showed similar data.

The full Black Knight report can be looked at here

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