Home prices are no longer climbing at rates that threaten to box out the average buyer.
According to the latest Home Price Index from real estate analysis service CoreLogic, property value appreciation rates decelerated to their slowest pace in 21 months during July. National home prices, including those attached to foreclosures, short sales and other distressed properties, rose 7.4 percent from July 2013 to July 2014. That marked the 29th consecutive month of year-over-year price gains, but as inventory levels have shifted, the increases have moderated. That serves as an encouraging development for house hunters who may have been concerned about local affordability.
On a month-over-month basis, national home prices jumped 1.4 percent in July - a more significant spike than was seen either of the previous two months. But, as a HousingWire noted, the consensus expectation is that appreciation rates will continue to plateau as the third quarter closes.
"Having all but stalled during the previous three months, the CoreLogic measure of house prices posted a decent gain in July," Paul Diggle, a property economist with Capital Economics, told HousingWire. "But this is probably no more than a temporary reprieve, and we expect house price growth to continue slowing over the remainder of the year."
A normalizing market
Forty-nine states saw median home prices increase again on an annual basis, while 10 states and the District of Columbia reached new HPI highs. The impact of distressed sales is waning, as evidenced by the fact that in all 50 states and Washington, D.C., values were up from the previous July. But with fewer foreclosures, large-scale investors have fewer opportunities to flip properties and resell them for profit, meaning the appreciation rates will gradually become more subdued.
It's a dynamic that poses good news for buyers in the sense that more owners may seek to capitalize on their accrued value, assuming the equity gains have been maximized. As more inventory hits the market to support the current demand, prices will continue to soften. First-time buyers, especially, could benefit from a housing market in which local home prices are not increasing by 10 to 15 percent annually.
The flip side is that buyers who sought to take advantage of foreclosure-heavy markets by buying at low prices now have fewer such options. The available inventory will generally be of the more traditional variety, with new construction projects and the aforementioned equity gains dictating much of the sales traffic.
"While home prices have clearly moderated nationwide since the spring, the geographic drivers of price increases are shifting," said Sam Khater, CoreLogic's deputy chief economist. "Entering this year, price increases were led by western and southern states, but over the last few months northeastern and midwestern states are migrating to the forefront of home price rankings."
More slow change to come
CoreLogic's HPI forecast called for a 0.6 percent bump in national prices from July to August, along with a 5.7 percent rate of appreciation from July 2014 through July 2015. As states such as Michigan, Nevada and California - each of which ranked in the top five for annual rates of property value appreciation during July - continue to work through foreclosure inventory, more regional markets will see the same sort of slowdowns.
Excluding distressed sales, Massachusetts, New York, Maine, Hawaii and Florida experienced the sharpest price increases during July. Boston real estate has been particularly prone to appreciation thanks to inventory shortages that are compounded by the region's geographical confines and general lack of space. But, as more sellers hit the market, prospective Bay State buyers could begin experiencing some relief.