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Analysts Expect Home Price Appreciation to Continue Slowing

house-for-saleThe pace of home price appreciation has slowed over the last year to little more than a crawl in most markets, and that trend is only expected to continue in the coming years as the housing market changes gears, one expert says.

In a recent analysis released by Kroll Bond Rating Agency (KBRA), senior managing director Christopher Whalen predicts many metros around the country will see home price appreciation switch to a much slower track—or even decline modestly, in some cases—as the factors directing the momentum of the last few years diminish and fundamental drivers start playing a bigger role.

Annual price appreciation regularly topped 10 percent nationwide in 2012 and 2013, fueled in large part by high levels of investor activity and a shortage of homes on offer to interested buyers. As of July, yearly growth was down to 5.6 percent, according to the S&P/Case-Shiller Price Indices.

According to valuation data gathered by KRBA through a recent investment in information provider Weiss Residential Research, nearly 80 percent of homes at the national level were seeing prices rise at the recovery's peak last year, up from 70 percent at the start of 2012.

Since then, that percentage has steadily declined, dropping to 65 percent as of the end of June 2014. Meanwhile, the number of homes showing declining valuations has risen more than 10 percentage points since the start of 2012 to 30 percent.

More extreme examples of that turn can be found at the local market level. For example, 90 percent of homes in Los Angeles were rising in value at the start of 2012, down to 70 percent as of June this year. At the same time, the share of homes falling in value has more than quadrupled to 25 percent.

On the other coast, 55 percent of New York homes measured by Weiss were increasing in price as 33 percent were falling. By June, 52 percent were still appreciating, but more than 40 percent had experienced a reversal.

While relatively high levels of investment activity and low inventory numbers (held down by the number of homeowners lacking enough equity to sell) are expected to continue giving a boost to appreciation rates, the market is becoming increasingly dependent on improvements in employment and consumer incomes to drive household formations. Unfortunately, both drivers currently lack the stability to provide significant gains.

"As the housing markets continue to stabilize and the impact of these extraordinary factors lessens, KBRA believes that the levels of HPA [home price appreciation] seen in the 2011–2013 period are likely to give way to a period of relatively stable or evenly modestly lower home price valuations," Whalen said. "Until the job market and consumer income show signs of sustained growth, we do not believe that there will be sufficient catalysts to sustain strong upward growth in HPA in residential housing."

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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