Home prices cooled in October, pulling down annual growth to the slowest pace in two years, but there are hints that the market could pick up next year.
U.S. home prices ticked down 0.1% in October from September, according to S&P/Case-Shiller’s 20-city composite index released Tuesday. Prices dropped in 10 cities, increased in eight, and were unchanged in two.
Meanwhile, the pace of annual growth also pulled back, with year-over-year home prices rising 4.5% in October — the slowest pace in two years — compared with an annual gain of 4.8% in September. Economists polled by Dow Jones Newswires had expected year-over-year price growth to slow to 4.7% in October.
But here’s why there could be a pickup again in 2015: Fewer cities are seeing slower annual home-price growth. There were 12 cities that posted slower year-over-year home-price growth in October than in September. That’s a large drop from August, when all 20 cities saw slower annual home-price growth.
“After a long period when home prices rose, but at a slower pace with each passing month, we are seeing hints that prices could end 2014 on a strong note and accelerate into 2015,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.
More than half of U.S. states are on track to hit or surpass peak bubble-era levels by the middle of 2015, and there’s some concern about certain markets getting overheated, according to separate data. However, areas that were hit particularly hard when the housing bubble burst, such as markets in Nevada and Florida, are still struggling.
Cooler appreciation may lure buyers who feel that they’ll have a better shot at getting a fair deal, and make homebuying a more realistic choice for families that haven’t seen quickly rising wages in recent years.
“A slower-moving housing market is inherently more stable, more balanced between buyers and sellers and more sustainable over the long-term,” said Stan Humphries, chief economist at real estate site Zillow.
But there’s also a darker side to slower home-price growth: It could take longer for equity to rise for owners, which in the past has helped homeowners who owe more on a mortgage than the home is worth and struggling with their payments. In the third quarter, about 17% of homeowners with a mortgage had negative equity, compared with 21% a year earlier, according to Zillow. That share could decline to 15% by the end of 2015’s third quarter.