Zillow: "Unsustainable" Home Price Appreciation Cooling Down

Zillow® said today there are signs thatrnthe rapid appreciation of home values that has been evident for some months isrnmoderating.  The company’s Home ValuernIndex (ZHVDI) rose 5.1 percent in the first quarter of 2013 to $157,600rncompared to the first quarter of 2012. rnWhile this was the 16^th consecutive month of year-over-yearrnappreciation, the last two months have exhibited a different pattern.</p

ThernZillow Real Estate Market Report used the most recent quarterly figuresrnto illustrate the slowdown; quarter over quarter appreciation in the firstrnquarter was 0.5 percent compared to 2.1 percent in the fourth quarter of 2012. Zillowrncalls the recent months of robust price gains “unsustainable” as historicrnannual home appreciation has run around 3 percent.</p

Some local markets however show no signsrnof slowing down.  Five of thernmetropolitan areas covered by Zillow experienced year-over-year appreciationrnexceeding 20 percent.  These are largelyrnareas that were particularly hard hit by price declines and/or foreclosuresrnduring and after the great recession, but their recoveries are stillrnnotable.  The annual increase in Phoenixrnis 24 percent, Las Vegas 22.3 percent, San Jose 22.1 percent, San Franciscorn21.4 percent, and Sacramento 20.1 percent.</p

The recovery, however is uneven.  Seven of the top 30 metro markets declined inrnthe first quarter.  Chicago leads thisrngroup with a first quarter decline of 1.4 percent from a flat fourthrnquarter.  St. Louis was down 1.2 percent,rnCharlotte 0.7 percent and Philadelphia 0.6 percent.  New York saw a decline of 0.3 percent afterrnthree positive quarters.  Cincinnati andrnPittsburg had smaller losses.  </p

Looking ahead, the Zillow Home ValuernForecast shows national home values increasing by 3.2 percent through Marchrn2014, an annual appreciation rate more in line with historic norms.</p

“The national housing marketrnhas rebounded strongly over the past year. But the sometimes dramatic homernvalue run-ups experienced during these months were never expected to bernsustainable, and recent slowdowns are indicative of a market that is slowlyrnfinding its natural level,” said Zillow Chief Economist Dr. StanrnHumphries. “Looking forward, we expect annual home value appreciation torncontinue to slow, as more inventory comes up for sale. But pockets of veryrnrapid appreciation will remain, a troubling sign of volatility and a potentialrnfuture headache as affordability is compromised and homes begin to look muchrnmore expensive to average buyers. This affordability issue may become acute inrnmany markets in a couple years once mortgage rates begin to return again tornnormal levels.”

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