U.S. Home Prices Rise at Slowest Pace in 20 Months

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Ken Blevins/Wilmington Star-News via AP
By CHRISTOPHER S. RUGABER

WASHINGTON -- U.S. home prices in July increased at the slowest pace in 20 months, reflecting sluggish sales and a greater supply of houses for sale.

The Standard & Poor's/Case-Shiller 20-city home price index rose 6.7 percent in July from 12 months earlier. That's down from an 8.1 percent gain in June and the smallest increase since November 2012.

Sales of existing homes have been weak for most of this year. They picked up over the summer but then fell in August and are 5.3 percent lower than a year ago.

The slowdown has occurred partly because investors are pulling back from the housing market. Meanwhile, many would-be buyers are unable to obtain a mortgage, particularly first-time buyers. Nineteen of the 20 cities in the index reported lower annual gains than in June. And a new broader index of nationwide home prices compiled by S&P rose just 5.6 percent.

The Case-Shiller 20-city index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The July figures are the latest available.

Even cities that have seen the biggest price gains are cooling off. Las Vegas' 12.8 percent price increase from a year ago was the highest of the 20 cities tracked by Case-Shiller. But that's down from a nearly 30 percent jump last year.

The second-largest increase was in Miami, where home prices rose 11 percent from a year earlier, and the third-largest was in San Francisco, with a 10.3 percent climb.

Nineteen of the 20 cities reported higher prices in July from June. Costs fell 0.4 percent in San Francisco that month.

A larger number of homes for sale is helping slow price gains. Last fall, bidding wars emerged in many cities as buyers chased after an unusually low housing inventory.

There are 2.3 million homes on the market nationwide, according to the National Association of Realtors. That's about 4.5 percent higher than a year ago.

In many states, the supply growth has been bigger. And unlike earlier in the recovery, they aren't dependent on foreclosures. More homes are being listed for sale by regular homeowners, many of whom were likely drawn into the market by last year's big price increases.

The number of homes for sale has jumped 46 percent in Nevada, according to Michelle Meyer, an economist at Bank of America Merrill Lynch. It has risen 38 percent in California and 33 percent in Arizona. That has helped slow price gains in those markets. Meyer forecasts annual price increases will decelerate to 3.9 percent by the end of the year.

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U.S. Home Prices Rise at Slowest Pace in 20 Months
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.
 

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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