After two years of accelerating year-over-year home value growth, prices have finally reached their peak, but that’s not to say the ride ends here, according to new data from Zillow (Nasdaq: Z).
Home values are still rising in most markets, however, the rate of appreciation has slowed considerably, thus making the housing market less competitive for buyers and alleviating speculative fears of another housing bubble, notes Zillow’s third quarter Real Estate Market Reports released Thursday.
The rate of annual price appreciation peaked at 8.1% in April and has since called in every month. At the end of the third quarter, U.S. home values were up 6.5% year-over-year to a Zillow Home Value Index of $176,000 in September—the slowest annual pace in the last 12 months.
And the rate of appreciation is expected to continue to slow, with Zillow forecasting home values to grow at 3%, roughly half their current pace, through the end of the third quarter of 2015.
The “cooling off” should welcome homebuyers who had been priced out of hot markets and most recent data should further combat concerns about another housing bubble, according to Zillow.
Particularly, the pace of home value growth dropped off significantly in markets that had been among the hottest recovering from the crash, such as those in California and the Southwest.
In Los Angeles, price appreciation slowed from 18.5% annually in the third quarter of 2013 to 8.3% over the past year, while annual appreciation in San Francisco slowed to 8.2%, compared to 23.5% over the same period last year, as noted by the Zillow data.
“What a difference a year makes,” said Zillow Chief Economist Dr. Stan Humphries. “At this time last year, we were worrying about a number of frothy markets that looked like they could be on the edge of another housing bubble, places where homes were appreciating at more than 20 percent per year and where buyers’ heads were spinning just trying to keep up.”
As the housing market cools, it is also having an impact on the dynamic between buyers and sellers.
At the end of the third quarter, there were 18.6% more homes on the market than last year. In September, nearly 37% of listings on Zillow had at least one price cut in the past month, an increase from 33.6% in September 2013.
“We always knew these market conditions couldn’t last, and it’s good to see us now on a more natural and sustained glide path down toward more normal market conditions of roughly 3 percent annual appreciation and more balance between buyers and sellers,” stated Humphries.
Future home values are expected to continue rising, however, that growth will be driven by traditional market fundamentals like household formation and job growth, and less by “artificial stimulants” like decreased supply and widespread investor demand, Humphries added.
Written by Jason Oliva
