Residential real estate prices rose in the 12 months ended May at the slowest pace in more than a year as a lull in the U.S. housing market limits appreciation.
The S&P/Case-Shiller index of property values in 20 cities increased 9.3% from May 2013, the smallest year-to-year advance since February 2013, after rising 10.8% in the year ended in April, the group said today in New York. The median projection of 30 economists surveyed by Bloomberg called for a 9.9% year-over-year advance. Compared with the prior month, prices dropped for the first time in two years.
Higher mortgage rates and strict lending requirements are bridling sales, which will probably prompt sellers to lower their expectations of how much they can get for their properties. Continued job growth and greater balance between supply and demand will be needed to bring some potential homebuyers back into the market.
"It's a healthy slowdown for the housing market," said Aneta Markowska, chief U.S. economist at Societe Generale in New York, the only forecaster to project a month-over-month drop in prices. "The sooner we correct to a more sustainable growth rate, the better it is for the price outlook in the medium term."
Estimates in the Bloomberg survey ranged from year-over-year gains of 9.2% to 10.7%. The Case-Shiller index is based on a three-month average, which means the May figure was also influenced by transactions in April and March.
Home prices adjusted for seasonal variations decreased 0.3% in May from the prior month, the first drop since January 2012, after climbing 0.1% in April. The Bloomberg survey median called for a 0.3% gain.
Unadjusted prices increased 1.1% in May for a second month.
Property prices fell in 14 of 20 U.S. metropolitan areas in May from a month earlier after adjusting for seasonal variations. Unadjusted prices rose in all 20.
"Housing has been turning in mixed economic numbers in the last few months," David Blitzer, chairman of the S&P index committee, said in a statement. "At the same time, the broader economy and especially employment are showing larger improvements and substantial gains."
The year-over-year gauge, which uses records dating back to 2001, provides better indications of trends in prices, according to the S&P/Case-Shiller group. The panel includes Karl Case and Robert Shiller, the economists who created the index.
All 20 cities in the index showed a year-over-year increase, led by Las Vegas and San Francisco. Cleveland showed the smallest increase.
Residential real estate has struggled to gain traction since mid-2013, as mortgage rates climbed from historically low levels. Data paint a choppy picture of the industry, which subtracted from gross domestic product for the past two quarters in the first-back-to-back declines since 2009.
The number of Americans who signed contracts to buy previously owned homes unexpectedly declined in June, falling 1.1% from the month before, figures from the National Association of Realtors showed yesterday in Washington.
Another report showed sales of newly built homes also declined last month, decreasing 8.1% to a 406,000 annualized pace and following a May reading that was a record 12.3% lower than previously estimated, according to Commerce Department data.
That comes even as other pillars of the economy, such as the labor market and manufacturing, show signs of improvement as the recovery grinds on. Federal Reserve officials, who are meeting this week to discuss the outlook for central bank asset purchases and interest rates, are concerned about the housing outlook as they wind down their stimulus program.
"Activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have, overall, continued to be disappointing," Fed Chair Janet Yellen said earlier this month during her semi-annual testimony to the Senate Banking Committee.
The average rate for a 30-year fixed mortgage was 4.13% in the week ended July 24, according to Freddie Mac. While down from 4.53% at the start of the year, it's higher than the 3.35% in May 2013, that was close to a record low.
Even after a pickup in payrolls this year, Donald Tomnitz, chief executive officer of D.R. Horton Inc., said the biggest impediment to housing continues to be job growth. The largest U.S. homebuilder by revenue will increase incentives to try to boost orders after net income in its fiscal third quarter fell 23% from a year earlier.
"I still say that we continue to create a lot of temporary jobs and part-time jobs," Tomnitz said in an earnings call. "Part-time workers are not looking for a house, they’re looking for a full-time job."