Data released this morning by Standard & Poor’s indicates that home prices in the 20 largest metropolitan areas in the U.S. declined by 0.1% in November, the first decline in a year.
Still, it is not only common but considered “normal” market conditions for prices to slip slightly as winter approaches and real estate activity dwindles. The seasonally-adjusted numbers for the S&P/Case-Shiller composite index for these 20 cities actually show a 0.9% increase in price. These cities make up roughly half of American households.
Year over year, U.S. home prices for the 20-city index were up 13.7%, an impressive medium-term gain. America’s third largest city, Chicago, saw its fastest annual home price growth since 1988.
Long-term, average home prices across these cities are still down roughly 20% from their record highs in 2006. While a few cities, like Dallas, have outpaced their 2006 zeniths, most still have plenty of ground to regain from their heights eight years ago. Only one of the cities (Detroit) has lower residential home values today than they did in 2000 however.
Home prices have been buoyed in the last two years by low inventory, low interest rates and what many analysts believe to be pent-up demand. The household “bundling” phenomenon witnessed during the Great Recession is still in the process of slow reversal, fueling the surge in demand for rental properties as adult children leave the nest and roommates go their separate ways.
Economists largely expect home price gains to extend through 2014, albeit at a slower pace. Watch for an annual growth in housing prices of 6-8% in 2014, as high rents and normalizing credit conditions drive up home prices further.
Real estate investors looking for deals are well advised to scour for deals during the winter quiet season, when activity and pricing are at their lowest for the year.