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The Housing Market Is Showing Signs of Moderation

By Colin Ryan

Image courtesy christmasstockimages.com

After 16 consecutive months of home value appreciation, the national housing market’s post-collapse resurgence is slowing down.

In the first quarter of 2013, home values rose just 0.5 percent. Compare this with the fourth quarter of 2012, when home values rose 2.1 percent. That’s a 1.6 percent decrease in the rise of home values from quarter to quarter.

When taken annually, however, home values are still up by 5.1 percent over last year. (Historically, home values have increased by approximately 3 percent per year.) So while it’s clear that the market has rebounded strongly over the past year, the slowing growth experienced in Q1 of 2013 illustrates that some of the dramatic home value increases we have seen were never meant to be sustainable.

Inventory constraints played a large role in price spikes. At the national level, inventory is down 17 percent from where it was a year ago. (In some areas it’s down as much as 40 percent.) Fewer homes on the market meant more pricing power for sellers, which drove prices upward. Looking forward, however, we can expect annual rises in home values to continue to slow as more and more homes come up for sale.

The fact that home value appreciation is slowing isn’t a bad thing: it’s a sign that the housing market is slowly returning to “normalcy,” or a natural level. The 5.1 percent increase in home values over last year can be understood as the market bouncing off the bottom – in the aftermath of the 2007-2008 housing market collapse, when prices reached rock bottom, the market had nowhere else to go but up, so up it went. Maintaining a 5.1 percent increase in home values year over year, however, wouldn’t be sustainable and would likely lead to another collapse.

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