Home price appreciation continued to lose steam across the U.S. in August; however, some markets posted significant gains, according to the S&P/Case-Shiller Home Price Index (HPI).
Nationally, home prices increased 0.2% compared to July, according to the report. The index's 10-city and 20-city composites also posted month-over-month gains of 0.2%.
Detroit led the cities with the gain of 0.8%, followed by Dallas, Denver and Las Vegas at 0.5%. Gains in those cities were offset by a decline of 0.4% in San Francisco followed by declines of 0.1% in Charlotte, N.C., and San Diego.
On a year-over-year basis, home prices were up about 5.1%, nationally.
The 10-city and the 20-city composites posted year-over-year increases of 5.5% and 5.6%, respectively.
‘The deceleration in home prices continues,’ says David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, in a release. "The Sun Belt region reported its worst annual returns since 2012, led by weakness in all three California cities – Los Angeles, San Francisco and San Diego.’
All cities except Cleveland saw their annual gains decelerate, according to the report. Las Vegas showed the most weakness in its year-over-year return; it went from 12.8% in July to 10.1% in August. As a result, Las Vegas lost its leadership position as it moved to second place behind Miami with a 10.5% year-over-year gain. San Francisco posted 9.0% in August, down from its double-digit return of 10.5% in July.
All cities except Boston and Detroit posted lower monthly returns in August compared to July. San Francisco showed its largest decline since February 2012; it was the only city that showed a negative monthly return two months in a row from -0.3% in July to -0.4% in August.
Despite the slowdown in home price appreciation, Blitzer is optimistic that the housing market will improve in the months to come.
"September figures for housing starts, permits and sales of existing homes were all up,’ he says, adding that ‘continued labor market gains, low interest rates and slower increases in home prices should support further improvements in housing.’
Earlier this month, home valuations solutions provider Clear Capital posted its monthly HPI report, showing that home prices increased 1.1% during the three-month period ended Sept. 30. Home prices were up 7.8%, year over year, when compared to the same three-month period in 2013, the report shows.
The Clear Capital report, which tracks home prices on a rolling quarterly basis, includes a chart showing that prices have historically risen and fallen based on consumer confidence.
‘While consumer sentiment levels reached a 14-month high in September, according to the University of Michigan's Consumer Sentiment index, momentum has tempered – like home prices,’ Clear Capital says in its report. ‘Consumer sentiment yearly growth rates have softened seven percentage points over the last seven months. Each of the last two times consumer sentiment rates have seen negative yearly changes, prices have declined. As housing seeks stability, moderating rates of consumer confidence and price gains foreshadow a third potential dip.’
As the report points out, many homeowners continue to be underwater and, thus, are not likely to sell. In addition, real estate owned (REO) inventories are drying up, which in turn is impacting distressed sales. As a result, investors have far fewer available properties to purchase. Because investor activity is what has been propping up sales and home prices during the past two years, this slowdown means home prices are now set to fall.
‘Distressed inventory is no longer reinforcing a strong housing market recovery,’ Clear Capital says in its report. ‘Discounted distressed deals continue to dry up, down from a national high of 38.4% in 2011 to just 16.5% in September 2014. While this is generally a positive sign, distressed sales helped drive the investor demand that kick-started the recovery.’
The problem is that this slowdown in investor activity comes ‘at a time when full buyer momentum has yet to be established,’ due mainly to the fact that income growth has been more or less flat since the recession began in 2008. In other words, the housing market now has to rely on income growth as opposed to investor activity, if things are to improve.
Alex Villacorta, vice president of research and analytics at Clear Capital, says ‘with less fuel stoking investors' fire and the consumer yet to feel confident in the market, we expect at best either a return to pre-bubble norms or a departure into negative territory.
‘If improvements in the job market continue to support a rise in consumer confidence, it's likely that owner-occupied buyers will be encouraged to pick up the slack in housing demand, once held steady by investors,’ Villacorta says. ‘While sentiment data is improving as of late, we've yet to see sentiment reach pre-recession levels. Even less encouraging, the index's rate of improvement is softening, alongside home price growth.
‘Without stronger rates of growth in consumer confidence, price gains could easily fall past the normalized annual rates of growth between 3% to 5% and back into negative territory,’ Villacorta warns. ‘This has the risk of invoking a negative feedback loop between falling prices and reduced confidence from potential home buyers. While the housing market has enjoyed abnormally high rates of growth during the last two and a half years of recovery, prices are back to long run historic levels, signaling an effective end to the correction to the correction. True market growth will be dependent on consumer confidence and re-engagement which will be tested over the next few months.’
Earlier this week, Black Knight Financial Services and the Federal Housing Finance Agency issued separate HPI reports also showing that home price appreciation continued to slow in August. All four reports use different methodologies to arrive at their findings.