Housing Bubble Fears Gone Awry as Home Price Appreciation Slows

The rate of home price appreciation has slowed down to its lowest annual pace, according to the latest data from Zillow.

The analytic provider's home value index rose to $176,500 in September, which is up 6.5% year over year. However, since peaking at 8.1% in April, property appreciation compared to the year before has fallen in every month since peaking at 8.1% in April, the Seattle-based company said.

"At this time last year, we were worrying about a number of frothy markets that looked like they could be on the edge of another housing bubble, places where homes were appreciating at more than 20% per year and where buyers' heads were spinning just trying to keep up," said Stan Humphries, chief economist at Zillow.

"We always knew these market conditions couldn't last, and it's good to see us now on a more natural path toward normal market conditions and more balance between buyers and sellers."

Zillow is projecting the rate of appreciation to continue to slow, as home values are forecasted to grow at 3% through the third quarter of 2015. This is roughly half the current pace.

The home price appreciation decline is beneficial to homebuyers who were priced out of hot markets. At the end of the third quarter, there were about 19% more homes on the market than last year. Furthermore, nearly 37% of listings on Zillow had at least one price cut in the past month, which is up more than four percentage points than a year earlier, Zillow said.

California cities, like San Francisco and Los Angeles, which experienced some of the greatest home price appreciation figures during the housing recovery, have had a noticeable slowdown. For example, Los Angeles home values are only up 8.3% through the third quarter of 2014, compared to 18.5% during the same time period last year.

Meanwhile, annual appreciation in San Francisco slowed to 8.2%, compared to 23.5% over the same time period a year ago.

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