August home prices up 1.3% from July

Home price gains likely peaked in April and have been slowing but are still strong as low inventory drives prices and buying remains cheaper than renting.

U.S. home prices were up 1.3% in August from July, but the peak rate of gain in home prices occurred in April, a widely watched index shows.

Data through August show that prices were up 12.8% year over year, according to the Standard & Poor's Case-Shiller 20-city index.

Both the 10- and 20-city indices showed their highest annual increases since February 2006, and all 20 cities reported positive year-over-year returns.

But while home prices continue to rise, it's at a slower pace each month since April. In August, 16 cities reported smaller gains compared with July.

Las Vegas led the cities with a monthly increase of 2.9%, its highest since August 2004. It's seen ramped up buying activity from investors now that more distressed inventory has become available to the market.

Detroit and Los Angeles followed with monthly gains of 2%.

All 20 cities posted monthly gains in August, but most showed deceleration compared with July. Seattle prices were up 0.5% in August. San Francisco has been losing momentum since April, when prices were up 4.9%, vs. 0.9% in August, Case-Shiller says.

Las Vegas also led in the category of one-year gains, at 29.2%, followed by San Francisco at 25.4%. On the other end of the range was New York, with a one-year gain of just 3.6% followed by Cleveland at 3.7%.

Tight inventory conditions likely drove the strong year-over-year home price growth in many of the cities, says economist Ellen Haberle from brokerage Redfin.

While more homes are for sale, the inventory hasn't expanded enough to bring home-price gains back down to near-normal levels, says Jed Kolko, Trulia economist. The for-sale inventory still looks about 15% below normal levels, when adjusted for seasonal factors, he says.

Another reason that home prices are still rising, although more slowly, is that buying is still 35% cheaper than renting in all of the 100 largest metropolitan regions, Kolko says.

Still, sales are likely to drop off in September and October due to seasonal declines and "buyer anxiety" from the U.S. government shutdown, Haberle says.

Other home-price tracking services have shown slowing rates of appreciation amid higher interest rates, more homes for sale and slowing investor purchases.

U.S. home values were up 1.2% in the third quarter from the second, Zillow data show. That's down from a 2.5% jump in the second quarter from the first.

"Home value appreciation is better when it's boring," says Stan Humphries, Zillow economist. "It's good to see the pace of home value appreciation moderate, allowing the market to get back into a more sustainable balance and not topple over."

Pending home sales, too, declined in September for the fourth month in a row, a signal to expect lower home sales this quarter and a flat trend going into next year, the National Association of Realtors said Monday. NAR said price gains will continue, however, given still tight inventories of homes for sale in many markets.

After spiking in May, mortgage interest rates have come back down. Freddie Mac data show them slipping last week to a four-month low at an average of 4.13% for the 30-year fixed rate loan. That's still up from 3.41% a year ago.

Article curated from USA Today