U.S. home prices fell for the second straight month in December as brutally cold weather, tight supply and higher costs slowed sales.
The Standard & Poor’s/Case-Shiller 20-city home price index declined 0.1 percent from November to December, matching the previous month’s decline. The index is not adjusted for seasonal variations, so the dip partly reflects slower buying as winter weather set in.
For all of 2013, however, prices rose by a healthy 13.4 percent, mostly because of big gains earlier in the year. That was the largest calendar year gain in eight years. But the year-over-year gain slowed from November’s 13.7 percent pace. That’s only the second time that year-over-year increases have declined since prices began recovering two years ago.
The figures come after other reports show that home sales and construction have slowed after strong gains last year. Most economists expect the housing recovery will continue this year, though likely at a slower pace.
“The market should continue its slow march back to normal, as annual (price) appreciation rates fall to more sustainable levels around 3 percent,” said Stan Humphries, chief economist at real estate data provider Zillow.
The Case-Shiller 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 December figures are the latest available.
“Gains are slowing … and the strongest part of the recovery in home values may be over,” said David Blitzer, chairman of the S&P’s index committee. “Higher home prices and mortgage rates are taking a toll on affordability.”
Even some cities in warmer areas saw declines. Home prices in Phoenix fell 0.3 percent, the first drop after 26 months of big increases.
Only six cities recorded higher prices in December: Dallas, Las Vegas, Miami, San Francisco, Tampa (Florida), and Washington, D.C. Home prices in all 20 cities rose compared with a year ago.
Mortgage rates are roughly a full percentage point higher than they were last spring, although they remain low by historical standards. Mortgage buyer Freddie Mac said last week that the average rate on the 30-year loan is 4.33 percent.
Sales of existing homes plunged in January to the slowest pace in 18 months. And builders broke ground on 16 percent fewer homes in January compared with December, the Commerce Department said this week. That was the second straight decline.
Builders also requested fewer permits in January for the third straight month, suggesting construction remained weak this month.
The declines came after existing home sales reached 5.1 million in 2013, the best showing in seven years. And builders started work on 976,000 houses and apartments last year, the most in six years.
Some economists say the Case-Shiller figures overstate recent price gains because they include foreclosures. Foreclosed homes usually sell at steep discounts. As the proportion of those sales declines, the index rises more sharply.
Other indexes that exclude foreclosures show smaller but steady increases.