Home value growth has peaked in the United States and the cooling real estate market has banished concerns about a property bubble, according to experts.
Home values are still rising in most markets, but the rate of appreciation has slowed considerably, making the housing market less competitive for buyers, according to the latest data from real estate firm Zillow.
It means that home buyers who have been priced out of hot markets will welcome the cooling off, and the most recent data should further combat worry about another housing bubble.
The rate of annual home value appreciation peaked at 8.1% in April and has fallen in every month since. That means that US home values were up 6.5% year on year at the end of the third quarter, to a Zillow Home Value Index of $176,500.
The rate of appreciation is expected to continue to slow. Home values are forecasted to grow at 3%, roughly half their current pace, through the end of the third quarter of 2015, according to the Zillow Home Value Forecast.
As the market cools, the dynamic between buyers and sellers is also changing. At the end of the third quarter, there were 18.6% more homes on the market than last year, and more homes listed recently had a price cut. In September, nearly 37% of listings on Zillow had at least one price cut in the past month, up from 33.6% in September 2013. The softening market means home buyers will find less competition.
The pace of home value appreciation dropped off significantly in markets that had been among the hottest at times during the housing recovery, particularly in California and the Southwest. In Los Angeles, home price appreciation slowed from 18.5% annually in the third quarter of 2013 to 8.3% over the past year. Annual appreciation in San Francisco slowed to 8.2% compared to 23.5% over the same time period last year.
‘What a difference a year makes. 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 percent per year and where buyers’ heads were spinning just trying to keep up,’ said Zillow chief economist Stan Humphries.
‘We always knew these market conditions couldn’t last, and it’s good to see us now on a more natural and sustained glide path down toward more normal market conditions of roughly 3% annual appreciation and more balance between buyers and sellers,’ he explained.
‘Home values should continue to grow, but that growth will increasingly be driven by traditional market fundamentals like household formation and job growth, and less by artificial stimulants like decreased supply and widespread investor demand,’ he added.
Nationally, rents rose 3.5% year on year in the third quarter, to a Zillow Rent Index of $1,335, rising 1.8% compared to the second quarter.
This article was republished with permission from Property Wire.