U.S. home prices in 2013 likely rose at the fastest pace in eight years, with almost half of states recently within 10% of peak levels, according to data released Tuesday.
In November, monthly home prices ticked up 0.1%, with annual growth of 11.8%, CoreLogic, an Irvine, Calif.-based analysis firm, reported. CoreLogic expects growth for all of last year to hit 11.5%, which would be the fastest pace since 2005.
Relatively few homes on the market and pent-up demand led to fast price appreciation last year. Also, some borrowers rushed to take advantage of the ultra-low interest rates for fixed-rate mortgages that started rising in early May.
Looking forward, economists expect home-price growth to cool down for several reasons. Price gains over the past year will make more sellers willing and able to place their homes on the market, and encourage builders to ramp up construction, thereby raising inventory. Also, home-price growth that outpaces income gains is unsustainable. And interest rates are expected to continue to rise, cutting some demand, though economists say expected increases won’t derail the market’s recovery.
New mortgage rules this year and ongoing housing-finance reform could also curb some lending.
“The outlook for 2014 looks a bit less robust as regulatory complexities and tight credit can be expected to cool the housing market,” said Anand Nallathambi, CoreLogic’s chief executive.
But slowing home prices aren’t all bad. Certain borrowers, such as first-time purchasers, who had trouble competing with investors and other buyers last year, may have a better shot at buying a home in 2014. Housing-market participation by first-time buyers is key because it helps young families grow their savings and enables repeat buyers to move into a new place.
By state, Nevada saw the fastest annual home-price growth in November, reaching above 25%. However, Nevada was hit particularly hard when the housing bubble burst, and prices there remain 40% below peak. Meanwhile, Arkansas saw annual home-price growth fall 1.1% in November, making it the only state with a year-over-year contraction. Other states, such as Nebraska, North Dakota and Texas, set new home-price peaks in November.