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Industry News

July home prices rise, but pace is slowing September 24, 2013

Home prices rose strongly in July, but the rate of increase may have topped out, a closely followed industry barometer shows.

Home prices were up 12.4% for the 12 months through July, according to the 20-city Standard & Poor's/Case-Shiller Index released Tuesday.

July prices were also up a robust 1.8% from June.  However, when adjusted for seasonal factors, July prices were up 0.6% from June.  That's the smallest month-to-month increase since September.

More cities are seeing slowing gains each month.  That suggests that the rate of increase "may have peaked," says David Blitzer, chairman of the index committee at S&P Dow Jones Indices.  

"The price slowdown is real," says Jed Kolko, chief economists for real estate website Trulia. 

Slimmer price increases are being driven by increasing numbers of homes for sale and declining investor purchasers, Kolko says.

Since January, the inventory of existing homes for sale has risen 5%, on a seasonally adjusted basis, Kolko says.  Individual investors accounted for 17% of existing home sales in August, down from 22% in FEbruary, the National Association of Realtors says.

The slowing is evident in numerous markets.

When adjusted for seasonal factors, Miami prices were up 0.5% in July from June.  They had risen 1.2% in June from May, Case-Shiller data show.

Portland, Ore., prices were also up 0.5% in July, vs. a 1% jump in June from May.

San Diego prices were up 1.5% in July, vs. a 2.2% rise in June.

Even with slower monthly gains, prices have staged a remarkable run-up this year.

The 20-city Case-Shiller Index shows non-seasonally adjusted prices up 11.2% form December through July vs. 5.9% for the same period last year.  That's the fastest rate of growth for that time period since 2004.

Price gains need to slow even more to be sustainable, given flat incomes, says Stan Humphries, Zillow chief economists.

Prices in Los Angeles, for instance, rose 1.5% in July form June, when adjusted for seasonal factors.  That's still four times faster than the rate of growth for that city form 1985 to 2000, Humphries says.

Many economists had expected higher interest rates, which spiked in May, to slow home sales and price gains.  Last week, the Federal Reserve said it would not yet reduce its monthly purchasers of government mortgage-backed securities and Treasury bonds, which has kept long-term interest rates low.

That change may have a "limited, though favorable" impact on housing, Blitzer says.

Since the Fed's announcement, rates have fallen to levels not seen since mid-June.  The 30-year fixed mortage rate on the Zillow Mortgage Marketplace hit 4.17% Tuesday, down from 4.38% a week earlier, Zillow says. 

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