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Portfolio > Portfolio Construction

Shiller, S&P’s Blitzer See Housing Growth Slowing

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Last year, housing prices had their best year since 2005, according to the S&P/Case-Shiller Home Price Index released Tuesday.

National home prices increased by 11.3% in 2013.

The report said the 10-City Composite posted a 13.6% increase in 2013, while the 20-City Composite gained 13.4%.

The positive news was tempered by data showing that month-to-month gains have been slowing, suggesting that the strongest part of the recovery in home values may be over, said David Blitzer, index committee chairman at S&P Dow Jones Indices.

“Year-over-year values for the two monthly composites weakened and the quarterly National Index barely improved,” Blitzer said. “The seasonally adjusted data also exhibit some softness and loss of momentum.”

Existing home sales fell 5.1% in January from December to the slowest pace in more than a year. Permits for new residential construction and housing starts were both down and below expectations.

Blitzer said cold weather across much of the country partially explained the weakness, but noted that higher home prices and mortgage rates were taking a toll on affordability.

“Mortgage default rates, as shown by the S&P/Experian Consumer Credit Default Index, are back to their precrisis levels, but bank lending standards remain strict,” he said.

Robert Shiller, who collaborated with Karl Case on construction of the index, said enthusiasm for investing in a new home was on the wane.

In 2005, homebuyers’ optimism was extraordinarily high, he said. They expected 12% increases for the next 10 years, this at a time when mortgage rates were 6%.

Their optimism has been declining ever since, he said.

Most recently, they expected home prices to increase by 3% over 10 years — below the current mortgage rate of 4.3%. Today, buying a home “is not an exciting investment,” Shiller said. “Buyers think they’re going to lose.”

The latest monthly data show that only Dallas, Las Vegas, Miami, San Francisco, Tampa and Washington, D.C., posted gains in December. Miami held onto the top position with an increase of 0.9%, followed by Las Vegas, up 0.4%.

All 20 cities experienced positive year-over-year increases in 2013. Las Vegas, Los Angeles and San Francisco posted gains of more than 20%, but all three cities showed lower annual rates in December than in November.

Eleven cities saw year-over-year price growth slow. The average deceleration was much bigger than the average improvement.

Las Vegas showed an annual rate that was lower by 1.8 percentage points, while Portland improved by approximately 0.6 percentage points.


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