Home prices have soared over the past year, but the news isn’t all good on the home front.
According to data released Thursday by RealtyTrac, the median price of a residential property sold in the U.S. in July was $191,000, up 3% from June and 12% from a year ago. This is the highest level since September 2008. States like Michigan (24% increase), Ohio (20%) and Virginia (20%) saw especially high year-over-year increases in median sales prices, as did cities like Detroit (33%), Dayton, Ohio (31%), Stockton, Calif. (24%), Modesto, Calif. (22%), Cleveland (20%), and Miami (19%).
But behind those gleaming numbers lies an unsettling reality: Home price appreciation is slowing. In 65% of the markets measured by RealtyTrac, the rate of home price appreciation was less than it was a year ago--a trend that Daren Blomquist, vice president of RealtyTrac, says will likely continue. “The 20%-30% appreciation we were seeing last year is not sustainable,” he says. “We know that incomes are not rising that fast, and when we look at affordability, many markets are getting back to their historic normal levels for affordability, an indication that price appreciation will slow down.” In general, a 5% — 6% rate of price appreciation over the long term is what’s normal, he adds, though of course in some years home prices don’t appreciate at all.
What’s more, in some markets--including San Francisco and Phoenix--that home price appreciation has slowed far more than others, compared with a year prior, and now is already in single digits. Many times, this is because investors jumped into these markets early to buy up properties and now are pulling out or easing off on buying because prices are high, says Blomquist.
On the other hand, some markets are still seeing rapid appreciation. In Cleveland, for example, from July 2012 to July 2013, home price appreciation was just 3%, but from last year to this year, it was 20%. Sometimes, this is because buyers or investors didn’t take much interest in distressed properties in these markets until relatively recently, says Blomquist.
For buyers scouring the market for deals, the news isn’t that great, either. The median price of properties in the foreclosure process or bank-owned properties was $128,000 in July, up 3% from June and up 11% from a year ago. Blomquist says that there has been very strong demand for these kinds of properties for a while now, and now inventory is drying up, sending prices upward for the very cheapest properties. This too, is a trend that will likely continue.
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