NAR: Home Price Appreciation Continued To Slow In Q2

Would you be surprised to learn, at this point, that home price appreciation decelerated in the second quarter?

As most people in the mortgage industry are well aware, home price appreciation slowed considerably during the first half of 2014 – to a rate of about 1% to 2% per month – hardly the rapid gains seen throughout most of 2013.

The trend is underscored by the latest quarterly report by the National Association of Realtors (NAR), which shows that year-over-year price appreciation is now at its slowest pace since 2012. Of the 173 metropolitan statistical areas (MSAs) tracked, 122, or 71%, saw modest home price gains on a year-over-year basis, while 47, or 27%, saw the average home price drop.

As the report reveals, there were fewer rising markets in the second quarter compared to the first quarter, when price increases were recorded in 74% of metro areas. Furthermore, 19 areas in the second quarter (11%) had double-digit increases, a sharp decrease from the 37 areas last quarter and the overall average of 43 areas since the second quarter of 2013.

As Lawrence Yun, chief economist for NAR, points out, rising home prices is a double-edged sword: On the one hand, rising prices gives existing homeowners more equity and, for distressed homeowners, an improved chance to avoid foreclosure and retain their asset. But for new home buyers, it is bad news, as rising prices means greater lack of affordability.

As per the report, the national median existing single-family home price in the second quarter was $212,400, up 4.4% from $203,400 in the second quarter of 2013. By comparison, the median price during the first quarter rose 8.3% from a year earlier.

As Yun points out, home price appreciation is a spotty phenomenon, with some markets seeing greater appreciation than others. For example, the West Coast, where inventory shortages are more prevalent, continued to see sharp increases in prices during the second quarter.

"New construction for ownership housing and rentals is needed to alleviate price and rent pressures and accommodate their growing populations," Yun says.

In fact, it can be argued that inventory is the primary driver of home prices. The report shows total inventory at the end of the second quarter was about 2.3 million existing homes, which is 6.5% higher than a year ago. The average supply during the quarter was 5.6 months, compared to 5.1 months in the second quarter of 2013. The more inventory increases, the more we can expect to see price appreciation flatten.

Not only does home price appreciation vary considerably from region to region, it can also vary considerably based on housing type. The report shows that metro area condominium and cooperative prices were up about 5.9% for the quarter. Again, this is mainly a function of supply and demand: With many consumers now priced out of the single-family market, demand for condominiums has increased, resulting in very low inventory in most areas.

The national median existing-condo price was $211,100 in the second quarter, up from $199,300 in the second quarter of 2013, according to the report, which also looks at existing home sales (including distressed sales), as well as mortgage interest rates.

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