Home prices are continuing to grow, but the end of a booming recovery may be nigh. July's housing prices showed signs of leveling off, according to the latest S&P/Case-Shiller Home Price Index figures. Year-over-year, the Case-Shiller 20-city composite index remains strong, with home prices across those cities growing by 12.4 percent from July 2012 to July 2013. That was in line with consensus expectations, according to Bloomberg.
However, prices grew by 0.6 percent from June 2013 to July 2013, below consensus expectations of 0.8 percent. July's monthly price growth also decelerated from a 0.9 percent rise in June, which may signal that home prices are about to level off.
"Since April 2013, all 20 cities are up month to month; however, the monthly rates of price gains have declined," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices, in a statement on the figures. "More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked."
The annual price growth of more than 12 percent reflects a startling recovery since a massive housing collapse. In mid-2012, the year-over-year figures turned positive and moved swiftly upward. Pent-up demand and limited inventory are two factors that have driven prices upward, and they both continue to keep home prices climbing, says Ellen Haberle, economist at real estate brokerage Redfin, in an email to U.S. News. Still, she sees prices flattening out before the end of this year.
"These price gains are unlikely to last," Haberle says. "We expect that higher mortgage rates, growing inventory levels, and seasonal relaxations of home demand will begin to moderate home price growth in the autumn months."
The current rate on a 30-year mortgage is around 4.5 percent, according to Freddie Mac, up from just over 3.3 percent at the start of the year. That growth in mortgage rates is likely affecting home prices, says one expert, but sales also depend more squarely on broader economic improvements.
"While there is some pent-up demand for homes, continued gains in sales are more reliant upon the job market and income gains than not," says Keith Gumbinger, vice president at mortgage and loan information publisher HSH.com, in an email to U.S. News. "With those tepid at best, it's more likely to be a sluggish recovery as we go forward, especially if rates and prices both remain firm."
Still, it's hard to generalize about national home price data when the market is so uneven across markets. Cities in California and the Southwest continue to show plenty of room for growth. Las Vegas' home prices grew by 27.5 percent annually in July, San Francisco's jumped by 24.8 percent, and Los Angeles home prices grew by 20.8 percent. Meanwhile, New York showed the slowest growth of the index's 20 cities, with annual growth of only 3.5 percent, and Cleveland followed closely with 3.9 percent.
Future reports on home prices may indeed show a moderation, but because of delays in the data, that tapering-off may already be in effect.
"We should start to see more of the cumulative effect of mortgage and price increases tempering demand when the September and October existing home sales reports come out," Gumbinger says.