Slowdown in Home Prices is No Reason to Panic

Although home prices have risen nearly 12 percent from a year ago, a slowdown is expected soon. But many analysts say it’s no cause for concern.

“Prices are still going to rise — just not as at brisk a pace as we’ve seen over the past year,” The Wall Street Journal reports. “This should calm down those pundits who have fretted over a new crop of housing bubbles.”

According to a report by Goldman Sachs economists, home prices will likely moderate because they have returned to “fair value” and are no longer being viewed as “undervalued,” as they were for the past two years. Also, a rise in mortgage rates may cause some buyers to re-evaluate their options. 

For the first time this year, buyer traffic dropped below agents’ expectations, and “the next few months will be crucial to determining whether this is just a pause or something more,” the Goldman Sachs report notes.

The report also notes that investors will likely slow their purchases as the number of foreclosures start to dry up. What’s more, the inventory of homes for sale is starting to loosen as more sellers look to put their homes on the market. Those sellers, in turn, will then be looking to purchase another home, so prices will still likely continue to rise until new-home construction catches up.

“With the improving underlying housing demand driven by household formation and economic recovery, we think housing activity will remain on an upward trajectory, despite occasional ups and downs along the way,” says the Goldman report.

Source: “Why Home-Price Growth Will Slow,” The Wall Street Journal (Aug. 12, 2013)