Slowing Home Price Appreciation Has a Silver Lining

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Home price appreciation has slowed for the past 10 consecutive months.

The slowdown has been most acute on the West Coast, particularly Washington State, and even more so in California, which has seen its annual rate of appreciation fall from over 10% in February 2018 to just 3% as of the end of 2018, according to Black Knight’s Mortgage Monitor report.

The slowdown has been most apparent in San Jose, Seattle and San Francisco, which have gone from being ranked first, third and fourth, respectively, in terms of home price growth, to all three hitting the bottom 25% within the past 10 months.

After seeing annual home price appreciation rates above 20% in 2017, prices in San Jose are now nearly flat from where they were one year ago. Home prices in San Francisco are up just 1.9%, while in Seattle home prices are up 3.1% from one year ago, whereas both metro areas had until recently been experiencing double-digit growth

As a result of this slowdown in home price growth, “the average home has lost more than $2,400 in value since the summer of 2018,” says Ben Graboske, president of Black Knight’s data and analytics division, in the report.

“And while home prices are still up on an annual basis, the slowdown continues nationwide and, importantly, is not being driven by seasonal effects,” Graboske says. “December marked the 10th straight month of slowing annual home price appreciation, falling from a high of 6.8 percent annual growth in February to 4.6 percent at the end of the year. With more than 50 percent of areas reporting, early numbers for January suggest we’re likely to see more of the same.

“That said, it’s important to keep in mind that annual growth is still outpacing the 25-year average of 3.9 percent – although the gap is closing quickly,” he adds. “Also, it’s yet to be seen what impact the recent pullback in interest rates may have on the national home price growth rate.”

The slowdown in home price appreciation is good, though, from an affordability perspective.

“Combined with the average 30-year fixed rate declining by more than half a point over the last three months, housing is now the most affordable it’s been since early in the 2018 home buying season,” Graboske says. “It currently requires 22.2 percent of median income to purchase the average home with a 20 percent down payment on a 30-year fixed-rate loan. That’s down from a post-recession high of 23.4 percent just a few months ago, and well below the long-term average of 25 percent seen in the late 1990s through the early 2000s, before the housing bubble.

“The recent decline in rates has translated into a more than 6 percent increase in a homebuyer’s purchase power – while keeping monthly payments the same – or a decrease of $62 a month in principal and interest on the average home bought with 20 percent down,” Graboske adds. “While this is all welcome news for consumers heading into the spring home buying season, it remains to be seen whether recent rate declines and easing affordability will be enough to halt the deceleration in home price growth.”

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