US home prices are rising, but more slowly

US home prices rose in March, but housing prices’ growth is slowing down, according to a report released Tuesday.

Standard and Poor’s/Case-Miller’s 20-city index increased by 0.88 percent month-over-month, and the National Index gained 0.2 percent in the first quarter of 2014. Prices are up by 12.37 percent over last year, but the pace of price acceleration is slower than it has been in recent months.

“The year-over-year changes suggest that prices are rising more slowly,” David M. Blitzer, chairman of S&P Dow Jones Indices’ Index Committee, said in a statement. “Annual price increases for the two Composites have slowed in the last four months and 13 cities saw annual price changes moderate in March. The National Index also showed decelerating gains in the last quarter.”

Home prices rose in 19 out of 20 cities, with major cities in the South and West seeing the biggest gains. New York, the only city in the index to have prices go down, declined by 0.32 percent.

Michael Gapens, senior US economist at Barclays Capital Inc., said in an e-mail analysis that while home prices rise this year, the rate of appreciation is likely to be slower than last. 

"First, affordability has worsened after several years of price gains and higher mortgage rates. Second, some of the over-correction in home prices after the recession has ended and there is less upside momentum following the overshoot, he said. "Better labor markets, growing income, accommodative policy, and still-attractive rates from a long-term perspective still provide a tail wind to housing and pricing."

Patrick Newport, an economist for IHS Global Insight, said he was surprised to see such price growth, given the anemic growth seen in the housing sales numbers.

“Even though there is weakness in the housing market, markets are very tight because there aren't a lot of homes out there for sale. It’s tight just about everywhere,” he said.

Home sales are very low across the country, Newport said. Nationally, they are still relatively close to the record lows seen at the bottom of the housing bust.

“We have not been building homes at high rates since 2008 and as a result of that, we have housing shortages just about everywhere,” he said. “That’s where you’re seeing home prices go up, just about everywhere, despite the fact that sales have dropped and despite the fact that builders aren’t building a lot of homes.”

Going forward, Newport said there will be better numbers from housing, including home search numbers and home sales. That said, the question now in today’s housing market is how long will it take for the US housing market to get back to normal, he added.

It could take about two years to go from the country’s current rate of putting up 1 million homes a year to the normal rate of 1.5 million homes, Newport said, but it also could take longer than that for the market to return to normal.

Another factor to consider is distressed sales, such as foreclosures. Particular markets, such as cities in the South and West, have seen a rise in home prices because there are less foreclosed homes on the market and new homes are being built instead. Thus, there are less inexpensive distressed sales, especially in cities hardest hit by the foreclosure crisis, notes Stephanie Karol, an economist for IHS Global Insight. At this moment, people may have trouble affording more expensive homes, but that it’s not necessarily a bad thing.

“It means that right now, bargains are a little bit tight, so it’s a little bit trickier to buy,” she says. “But it sets the stage for general price pressures to ease a little bit later on.”