US home prices up 5.4% year on year, but experts warn market will slow

Residential real estate values in cities in the United States increased by 5.4% year on year last month, the second highest annual rate of national appreciation registered in the past 12 months. The 5.4% annual gain in May was exceeded in the past year only by January’s 5.6% year on year increase, said property firm Zillow.

It means that home values have risen or remained flat month on month for 19 months in a row. The last time home values rose to approximately this level was July 2004. A majority, some 50.8%, of the 360 metros covered experienced home value appreciation between April and May. Among the 30 largest metro areas covered by Zillow, Sacramento experienced the largest monthly increase, with values rising 1.7%. Other large metro areas with notable monthly increases include Las Vegas up 1.3% and Los Angeles up 1%.

For the 12-month period from May 2013 to May 2014 home values are expected to rise 4.1% to approximately $165,448, according to the Zillow Home Value Forecast. The firm says that the pace of home value appreciation nationwide and in many local markets is expected to moderate as more sellers enter the market and builders begin construction on more new homes, helping ease the supply crunch that has so far contributed heavily to rapid home value appreciation.

‘Enjoy it while it lasts, because the housing market will undoubtedly look very different a few years down the road from how it appears now. Inventory constraints are beginning to ease in many areas as more listings and new homes come on line, which will ultimately help end this period of rapid annual home value appreciation above 5%,’ said Zillow chief economist Stan Humphries. ‘Additionally, as interest rates begin to rise from their historic lows, some demand may also ebb from the market as home purchases become more expensive to finance. While we believe the housing recovery will remain strong, home value appreciation will slow down, and buyers in it for the short term could get burned if they assume home values will continue rising as they have unabated,’ he explained.

Quote from PropertyCommunity.com : “Low priced homes in the United States that need work done on them can be found for well under $100,000, according to listings firm Realtytrac.”

‘A home should always be looked at as a longer-term purchase, which will help cushion homeowners against volatile short term swings in value,’ he added.

Of the nation’s 30 largest metro areas covered by Zillow, 29 experienced year on year home value increases in May, with half up by double digit percentages. Major markets where home values increased the most over the past year include Las Vegas up 28%, Sacramento up 26.1%, San Francisco up 24.2%, San Jose in California up 21.8% and Phoenix up 21.3%. St. Louis was the only metro area in the top 30 where home values declined year on year. National rents declined slightly in May compared with April, down 0.1% to a Zillow Rent Index of $1,286. Year on year, national rents were up 2.6% in May.

The number of completed home foreclosures in May fell to 5.01 homes foreclosed out of every 10,000 homes nationwide, down 0.4 homes per 10,000 from April and 1.4 homes per 10,000 from May 2012.  This is the lowest monthly level of foreclosure liquidations since October 2007. Foreclosure resales represented 10.7% of homes sold in May, down 1.1% from April and 3.8% from May 2012.