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From Jason Payne, Market News Analyst:
Home prices improved dramatically once again during October, but indications suggest that 2013's robust price increases are almost tapped out.
As reported earlier this week, the widely-watched S&P/Case-Shiller index of U.S. home prices rose 13.6% from year-ago levels, thereby representing the largest annual gain since early 2006 (at the peak of the housing bubble).
The gain was widespread, with all 20 major markets tracked by the index posting solid improvements. New York (up 4.9%) posted the smallest gain, while Las Vegas (up 27.1%) posted the largest gain.
Home values have been rising at a faster annual rate every month for almost two years, driven primarily by:
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The depletion of available inventories by deal-hungry investors
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And improving employment trends across the U.S. economy (which empowers a larger population of retail buyers)
But due to the prospect of rising mortgage rates and several other factors, October values were virtually unchanged from September levels.
Specifically, the FHFA’s index of U.S. house prices rose only 0.5% from September as buyers competed for a tight supply of properties for sale. This lackluster gain matched the average expectation of economists.
Close to a Peak?
According to S&P, "Housing data suggest that we may be close to the peak gains in prices." Although analysts estimate that home prices will continue to rise during 2014, the annual improvement is expected to be in the single digits, rather than repeating the dramatic performances recorded throughout much of the last year.
Gains are set to moderate as (i) more sellers list their properties for sale, (ii) fewer distressed houses are available for investors to purchase and (iii) higher mortgage rates cut into affordability, said Mark Vitner, a Wells Fargo & Co. senior economist based in Charlotte, North Carolina.
The slowdown in price gains is probably good for the market, and consumers looking at more recent reports should embrace this slowdown, because it will make for a more balanced market in 2014 and beyond.
The Big Picture
From a macroeconomic perspective, the housing recovery has recently been a key area of strength in the broader U.S. economy.
U.S. homes gained $1.9 trillion in value this year, the biggest jump since 2005 according to Zillow, as the real estate market rebounded from the recession. The country’s housing stock lost $6.3 trillion in value from 2007 through 2011 and has now recovered 44% of that amount.
But the nation’s supply of homes available for sale still remains constricted, primarily due to various combinations of underwater mortgages and several years of reduced homebuilding activity. And that tight supply has helped to boost values.
Simultaneously, a proverbial fire has been lit beneath the feet of many potential buyers as mortgage rates have been rising steadily for months since hitting a record low in Spring 2013. Currently, the interest rate on a 30-year loan stands at approximately 4.48%.
Jason Payne’s next Market News Update is scheduled for Wednesday, Jan. 8th.
Jason Payne
is a management consultant and founder of the Groundwar Group -- a private consulting firm providing premier corporate advisory and leadership training solutions for business leaders and investors worldwide. Mr. Payne is also the Senior Market News Analyst and a featured "Mindset" advisor for more than 15,000 entrepreneurs and investors at RealEstateMogul.com -- roles he has held since 2013 and 2014, respectively. In these capacities, Jason draws from more than a decade of successful business and investment research on Wall Street to provide insightful commentaries on a wide variety of investing- and leadership-related topics.
Mr. Payne began his career as a research analyst in the award-winning Equity Research department of Morgan Keegan & Company, where at 26 years of age, he became one of the youngest published analysts on Wall Street -- with a specialized focus on real estate investment trusts (REITs). Jason also holds a degree in Finance from New York University's prestigious Leonard N. Stern School of Business, and he is currently completing his professional residency within the Global Leadership Training program of Uruguay's multinational Geronimo Center for Innovation & Leadership.