Home prices in 20 U.S. cities rose at a slower pace in the year ended in October, putting the market on better footing heading into 2015.
The SP/Case-Shiller index of property values increased 4.5% from October 2013, the smallest gain in two years, after rising 4.8% in the year ended in September, a report from the group showed today in New York. The median projection of 24 economists surveyed by Bloomberg called for a 4.4% advance. Nationally, prices rose 4.6% after a 4.8% gain in the year ended in September.
Smaller increases in home prices mean residential real estate will be within reach of more Americans as the job market improves and wage gains accelerate. The rebound in property values from the depths of the recession has also helped repair homeowners finances, which is contributing to gains in consumer confidence and spending that are driving the economic expansion.
“As the housing markets continue to gradually improve, youll start to see more normalization in prices,” Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said before the report. “Things are a little more tempered.”
Economists’ estimates in the Bloomberg survey ranged from gains of 3.9% to 5%. The SP/Case-Shiller index is based on a three-month average, which means the October figure also was influenced by transactions in August and September.
Home prices in the 20-city index, adjusted for seasonal variations, increased 0.8% in October from the prior month, the biggest gain since March. It exceeded the Bloomberg survey median that projected a 0.4% advance. Unadjusted prices dropped 0.1%.
The year-over-year gauge, based on records dating back to 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Eight cities saw prices rise faster in the year ended in October than in the prior month, including San Francisco, Denver and Tampa, Fla. Twelve experienced smaller gains compared with 18 in September.
“We are seeing hints that prices could end 2014 on a strong note and accelerate into 2015,” David Blitzer, chairman of the SP index committee, said in a statement.
All 20 cities in the index showed a year-over-year gain, led by a 9.5% climb in Miami and a 9.1% advance in San Francisco. Cleveland showed the smallest increase, with prices rising 0.9%.
Borrowing costs still hovering near record lows may help draw more buyers into the market. The average rate on a 30-year, fixed mortgage was 3.83% in the week ended Dec. 25, the second-lowest since May 2013, according to Freddie Mac data. The rate dropped by 0.65 percentage point this year after rising 1.13 percentage points in 2013.
November data show residential real estate losing traction. Purchases of previously owned homes fell more than forecast in November to a 4.93 million annual rate, the weakest reading since May, figures from the National Association of Realtors showed last week.
New-home sales unexpectedly declined in November to a four-month low, further demonstrating a lack of momentum in the market as it enters the slower winter months. Sales dropped 1.6% to a 438,000 annualized pace last month following a 445,000 rate in October that was weaker than previously estimated, Commerce Department figures showed last week.
Home-improvement retailer Lowe’s Cos. of Mooresville, N.C., is counting on healthy U.S. growth prospects to sustain the housing recovery over the next three years.
“Overall macro growth will bode well for industry, particularly, the improving trends in income and housing,” Chief Financial Officer Robert Hull said at a Dec. 11 investor conference. “A strengthening job market should contribute to disposable personal income growth,” while households already are “becoming more financially fit,” he said.
Payroll gains on track for their best year since 1999 also are bolstering potential homebuyers. Employers have added an average 240,910 jobs per month in 2014 through November and the unemployment rate has fallen to 5.8% from 6.7% at the end of last year. The Labor Department will release December figures Jan. 9.