While the housing market is still far from “normal,” it is inching that way, according to a report released Thursday from Zillow. Last year’s skyrocketing home price appreciation, frenzied demand from investors, and high tide of negative equity are all expected to subside somewhat this year, according to the real estate company.
Nationally, home prices increased 6.4 percent year-over-year in the fourth quarter, but annual price gains are expected to fall to 4.8 percent by the end of this year.
On a quarterly basis, prices rose 1.4 percent in the fourth quarter, according to Zillow.
“Below the surface of last year’s market, a number of unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting up a bit of a mixed bag for 2014,” said Stan Humphries, chief economist at Zillow.
However, some of the markets that posted the highest price gains last year are already slowing, which according to Zillow, is “a welcome sign in markets that risk crossing over into bubble territory as rising mortgage interest rates create affordability issues for homebuyers.”
Markets such as those in California and the Southwest that experienced rapid appreciation this year may stall this year due to affordability issues, leading to “volatility that could potentially cause whiplash for homebuyers and sellers,” according to Zillow.
Nationally, price appreciation is already tapering off, according to Zillow. After reaching a high of a 7.1 percent annual price gain in August, price gains remained below 7 percent for the entire fourth quarter.
However, local markets will vary widely this year with a 16.1 percent anticipated gain in Riverside, California, and a 0.4 percent gain anticipated in Kansas City, according to Zillow.
All but three of the nation’s 35 largest metros experienced price growth in 2013, and all but one are expected to experience price gains again this year, according to Zillow.
After posting a 3.8 percent decline last year, St. Louis, Missouri, is the only metro expected to experience falling prices this year with an anticipated 3.1 percent decline.
In two of the 35 markets Zillow tracks—Denver and Pittsburgh—home prices surpassed the peaks they reached before the housing downturn.
While home prices rose 1.4 percent in the fourth quarter to $169,000, rents rose 0.7 percent to $1,302.