Home Values to Rise Only 2.7% by October 2014

Home values have fallen in two consecutive months for the first time since October 2011, according to Zillow data.

The Zillow Home Value Index through October is $162,800, a slight 0.1% drop from the previous month. And even though home price appreciation was up 5.2% on a yearly basis, this represents a much slower pace than the 7% figure that was seen over the summer.

“The months-long period of annual home value appreciation rates in the 6 and 7% range was great while it lasted but we knew it would not continue indefinitely,” said Stan Humphries, chief economist at Zillow. “The slowdown we’ve seen these past few months was expected, and is largely welcome news for a market still struggling to find its natural balance.”

Out of the 388 metropolitan statistical areas covered by Zillow, half experienced monthly home value depreciation in October from September. Among the 30 largest markets Zillow tracks, 10 exhibited a month-over-month drop in home prices, while two more were flat.

Over the next year, national home values are forecasted to increase just 2.7%, which is approximately half the current pace, Zillow says. The biggest declines are projected to occur in St. Louis (down 1.5%), Philadelphia (drop of 0.9%), and New York (decline of 0.7%).

Meanwhile, renting a housing unit continues to be costly in October as it went up from the month before and a year ago by 0.2% and 2.3%, respectively.

“The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand, are waning,” Humphries says. “In their place, we’re beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward.”

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