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National home price gains in the United States were notably lower over the quarter to the end of February, down to 1% from 2.5%, according to the latest data from real estate valuers Clear Capital.

This is the largest drop since 2010, when gains were coming off the first time home buyer tax credit. The firm says however, that as markets adjust to the new normal, 1% is significant and 2014 is only expected to see 3% to 5% growth.

Additionally in February, national REO saturation increased 1.8% from 20.9% to 22.7%, the largest gain since January 2012.
 
Its market report days that declining quarterly gains coupled with rising REO saturation suggest home prices could see quarterly declines within the next few months.
 
It adds that with one month of winter to go, moderating prices in the bottom half of the lowest performing metro markets suggest near term price declines are not out of the question. In February, three out of 15 metro markets reported slight declines over the quarter. The remaining 12 metros were mostly flat with not one market reaching 1% growth.

Jacksonville’s REO saturation rose by 3.2% over the quarter to 43.2%, the highest rate of distressed sale activity across the largest 50 metropolitan areas, and the largest quarterly increase for Jacksonville since early 2011.

Under the pressure of rising distressed activity, price gains have cooled dramatically. Current quarterly gains of just 0.7% represent the lowest rate of growth for Jacksonville since the middle of 2011.

‘A few concerning indicators surfaced in February’s home data. Our early data shows national quarterly price gains are falling at a rapid pace and suggest overall prices could dip into negative territory soon if current conditions continue,’ said Alex Villacorta, vice president of research and analytics at Clear Capital.

‘In light of expected waning investor demand, higher rates of distressed sale activity signal that the housing market still must withstand distressed sales, which account for nearly one in four transactions. Since the market fallout in 2006, home prices have dramatically declined during sustained periods of rising distressed sale activity. Over the last two years, however, rising distressed sales have been offset by investor demand, which is not guaranteed to be present in 2014,’ he pointed out.

‘Though it is not unusual to see rising distressed activity over the winter months, the current housing picture gives reason to be concerned. If we don’t see a correction come spring, the housing market may be in for a long year,’ he added.

He also explained that despite year end forecasted gains between 3% and 5%, the market is still susceptible to declines. ‘While the industry agrees that 2014 will be a year of moderation, we’ll likely see more concern about declines over the next few months. We’ll keep a close eye on our early data and markets like Jacksonville, where rising REO saturation could snowball into declines over the short term,’ Villacorta concluded.

This article was republished with permission from Property Wire.