US price growth slowing, according to latest S&P index

Residential real estate prices in 20 key American cities increased at a slower pace in the year to the end of March as the housing market began to weaken at the start of 2014.

According to the S&P/Case-Shiller index property values increased 12.4% from March 2013, the smallest 12 month gain since July, after rising 12.9% in the year that ended in February.

Tight lending standards and a rise in mortgage rates since the middle of 2013 have slowed demand, limiting the ability of sellers to keep asking even higher prices. An increased availability of cheaper properties, faster job and income growth, and a sustained drop in borrowing costs this year would help draw more buyers into the market.

‘The upward trajectory of prices remains in place, but with a slower rate of appreciation,’ said Michael Gapen, senior US economist at Barclays Capital in New York.

‘There’s still reason to suspect that home prices will rise as credit availability on the margin, is actually getting better, labour market progress is gaining strength and average income is improving,’ he said.

Prices covering all of the US climbed 10.3% in the first quarter from the same period in 2013, down from an 11.4% year on year gain in last year’s fourth quarter, which was the biggest increase since the first quarter of 2006.

Home prices adjusted for seasonal variations increased 1.2% in March from the prior month while unadjusted prices rose 0.9%.

All 20 cities in the index showed a year on year gain, led by a 21.2% rise in Las Vegas and a 20.9% increase in San Francisco. Cleveland showed the smallest year on year increase, with prices rising 3.9%.

Home sales have been slow to pick up from a slump in early 2014. Purchases of new homes climbed last month by 6.4%, the first gain in three months, to a 433,000 annualized rate, Commerce Department data shows. The advance was led by a 47.4% surge in the Midwest.

Sales of previously owned homes rose 1.3% in April, the first gain this year, data from the National Association of Realtors showed. The increase showed signs of underlying softness, as investors continued to play a big role in the market and the share of first-time buyers was little changed.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six month performance since the first half of 2009.

 “Housing indicators remain mixed. Mortgage rates are near a seven-month low but recent comments from the Fed point to bank lending standards as a problem,’ said David Blitzer, chairman of the S&P index committee.

The rise in borrowing costs eased in the second half of 2013, providing more incentive for buyers to come off the side lines. The average rate on a 30 year, fixed mortgage was at 4.14% in the week ended May 22, down from 4.53% at the start of the year, according to Freddie Mac. The latest rate is less than half its 8.52% average back to 1971.