U.S. home prices increased 0.1% in December compared with November and were up 4.7% compared with December 2017, according to CoreLogic’s home price index report.
However, home price appreciation was at the slowest pace since 2012. December marked the ninth consecutive month of decelerating annual home price appreciation.
“Higher mortgage rates slowed home sales and price growth during the second half of 2018,” says Frank Nothaft, chief economist for CoreLogic, in a statement. “Annual price growth peaked in March and averaged 6.4 percent during the first six months of the year. In the second half of 2018, growth moderated to 5.2 percent.”
CoreLogic forecasts that home prices will increase 1% from January to February and will rise 4.6% between now and January 2020.
The report shows that 33% of metropolitan areas had an overvalued housing market as of December. About 27% were undervalued while 40% were at value.
Moderating home prices could be good news for the housing market as the spring home shopping season approaches. If mortgage rates continue to hold steady and household incomes continue to rise, it could lead to an increase in home sales. The wild card is low inventory, which has been constraining sales for more than a year now.
In a recent housing sentiment survey commissioned by CoreLogic, 45% of renters say they cannot afford a home at this time.
However, should home prices start to cool, buyer affordability will improve, the firm says.
“The slowdown in the rate of home price appreciation reflects the impact of inventory shortages and growing affordability issues in many markets,” says Frank Martell, president and CEO of CoreLogic. “On the positive side, if home-price growth continues to moderate, interest rates remain stable and household incomes rise in 2019, it could help renters and first-time buyers to take the plunge and realize the dream of owning a home.”