Home Prices Cooling Slightly…

I had to share this article from the SF Chronicles Kathleen Pender. On that note – I can feel the shift in the market as I type this. July is coming and vacations are happening – and suddenly the mad house of the Spring market is settling down. Can you believe – some homes only received 1 offer. But let’s not forget – all we need is one offer per house. So enjoy this article – I would love to hear your thoughts!

-Sabrina Caton

Home Prices Cooling Slightly by Kathleen Pender

Although it might not seem like it in San Francisco, the overheated housing market seems to be cooling off.

It’s not that home prices are falling, they are just rising at a slower pace.

This week S&P/Case-Shiller reported that its 20-city home price index rose “only” 10.8 percent in April compared with April of last year. That was a smaller increase than the 11.6 percent analysts were expecting, and substantially lower than in previous months. All 20 metro areas except Boston saw smaller year-over-year price increases.

The rate of appreciation has been declining every month since November, when prices rose 13.7 percent over the previous year. In March, the increase was 12.5 percent.

Prices “are coasting back into a more normal situation,” said David Blitzer, a managing director with S&P.

The same pattern holds in the San Francisco metro area, which also includes Alameda, Contra Costa, Marin and San Mateo counties.

Year over year, prices rose 18.2 percent in April, compared to 21.2 percent in March and 25.7 percent in September.

Blitzer expects this trend to continue, in part because there has been a drop-off in the number of corporations buying houses to rent out. He predicts that by the end of 2014, year-over-year price increases will be in the 4 to 7 percent range.

The Case-Shiller report confirms other signs that suggest the real estate market is losing momentum.

Asking prices for homes nationwide rose 8 percent year-over-year in May, their slowest rate in 13 months, Trulia reported this month. Asking prices tend to lead sales prices by about two months, making them a good early warning signal.

“In the markets with the most extreme rebounds, there has been a clear slowdown in price gains. That is a good thing. That is happening even before we have gotten back to a housing bubble,” Trulia Chief Economist Jed Kolko said.

Despite the sharp increase in prices, Trulia estimates that homes nationwide were still undervalued by 3 percent in the second quarter of 2014, compared with 5 percent undervalued in the first quarter and 8 percent undervalued a year ago.

At their extremes, homes were 39 percent overvalued in the second quarter of 2006 and 15 percent undervalued in the fourth quarter of 2011.

To determine whether a particular market is over- or undervalued, Kolko looks at factors such as its price-to-income ratio, price-to-rent ratio and prices relative to its own long-term trends.

Even though prices in San Francisco are astronomical, the market was only 6 percent overvalued relative to its long-term fundamentals in the second quarter. Nine other cities were more overvalued, including San Jose (11 percent) and Oakland (10 percent).

Stan Humphries, chief economist with Zillow, said he expects “a substantial moderation in home value growth” as the market transitions from one fueled by ultra-low interest rates and tight inventory to one fueled by household formation and income growth. Although the latter is more organic and sustainable, it’s also slower-growing than the former.

Zillow’s price index, which has wider geographic coverage than Case-Shiller’s, indicates that prices nationwide rose 5.4 percent in May compared to May of 2013. “Our forecast is that home prices over the next year will rise 3 percent,” Humphries said.

In San Francisco alone, Patrick Carlisle of Paragon Real Estate said, there was no evidence of a slowdown in April or May. “This is the most ferocious spring I have ever seen,” said Carlisle, who has been tracking the market since the late 1980s. “In May, 29 percent of all sales (in San Francisco were) 20 percent or more over asking,” he said.

“I’m seeing some signs of a slowdown in June. Inventory is starting to pick up for the first time in a long time,” he said, “and the percentage of listings under contracts is going down a little bit.”

But the market typically slows down in June, and there are no data yet for sales that closed in June.

It’s too soon to say whether the June slowdown is merely seasonal or reflects “buyer exhaustion or some sort of shift in the market,” Carlisle said.

Moody’s upgrades California: Moody’s Investors Service on Wednesday raised California’s credit rating by one level to Aa3, its fourth-highest grade, from A1.

Before the upgrade, Moody’s had California rated one notch higher than rival agencies Standard & Poor’s and Fitch. Now, it has California rated two steps higher.

This is the fist time Moody’s upgraded the state’s general obligation bond rating since 2006. The last time it was at its new level, Aa3, was in May 2001, says Moody’s spokesman David Jacobson.

S&P upgraded the state to single-A from A-minus in January 2013. Fitch Ratings raised its rating to single-A from A-minus in August.

As strengths, the report cited California’s large and diverse economy, high wealth, improving liquidity and governance improvements leading to on-time budgets for the past three years. It also cited “significant improvement in budget deficits through revenue surges and conservative measures to rein in spending.”

As “challenges,” it cited the state’s highly volatile revenue structure (which is heavily dependent on tax revenue from high-income people and capital gains), governance restrictions such as the supermajority needed to raise taxes, lack of reserves for a rainy day and its reliance in the past on one-time fixes to close budget gaps.

Even after the upgrade, California “is still on the lower side for states,” Jacobson said. Two other states, Arizona and Connecticut, have the same rating as California, Aa3. Only New Jersey and Illinois have lower ratings.

Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: kpender@sfchronicle.com Blog: http://blog.sfgate.com/pender Twitter: @kathpender

I read this article at: http://www.sfgate.com/business/networth/article/Housing-prices-cooling-slightly-5579655.php

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