Home prices in 20 U.S. cities rose at a slower pace than forecast in the year ended in April as declining affordability put a lid on appreciation.
The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported today in New York. The median projection of 25 economists in a Bloomberg survey called for an 11.5 percent year-over-year increase in April.
Sellers’ ability to ask ever-higher prices has diminished as smaller wage gains make it difficult for some prospective buyers to qualify for financing. Cheaper properties, an easing of credit standards and employment opportunities accompanied by faster income growth would help brighten the outlook for residential real estate.
“It’s a movement toward a more normal market,” Scott Anderson, chief economist at Bank of the West in San Francisco, said before the report. “We’re seeing a normalization of the market going forward.”
All 20 cities in the index showed a year-over-year gain, led by an 18.8 percent increase in Las Vegas and an 18.2 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 2.7 percent.
Slower price appreciation and borrowing costs that have fallen since the start of the year will help support sales. The average rate on a 30-year, fixed mortgage was 4.17 percent in the week ended June 19 compared to 4.53 percent in the period ended Jan. 2, according to Freddie Mac in McLean, Virginia.
“Near-term economic factors favor further gains in housing: mortgage rates are lower than a year ago, the Fed is expected to keep interest rates steady until mid-2015 and the labor market is improving,” index committee chairman David Blitzer said in a statement. “However, housing is not back to normal.”
Marianne Lake, chief financial officer for JPMorgan Chase & Co. in New York, called 2014 “a transition year” for housing and mortgage markets. Most owners have refinanced into lower rates and demand for purchase financing is weaker than it once was, she said at a June 11 conference.
“The combination of refi burnout as well as slow purchase improvement has led to the smallest production market in over 14 years,” Lake said. “Income growth isn’t where it needs to be, but we are still expecting that to be recovering over the course of the next several years.”