The Standard & Poor's/Case-Shiller 20-city home price index, released Tuesday, rose 5.6 per cent in August from 12 months earlier. That's down from 6.7 per cent in July and the smallest gain since November 2012. Home prices were rising at a double-digit pace as recently as March.
The rapid slowdown has been most pronounced in many of the western cities that had seen the biggest price gains in recent years. The annual price gain in Las Vegas braked sharply to just 10.1 per cent from 12.8 per cent in July. Prices rose 9 per cent in San Francisco from a year earlier, down from 10.5 per cent.
The smaller price gains, combined with a recent drop in mortgage rates, could spur more sales. Home sales rose in September to their fastest pace this year, but still remain slightly below the pace reached 12 months earlier. The number of homes for sale is rising, which helps keep prices in check.
"We're transitioning away from a period of hot and bothered market activity, characterized by low inventory and rapid price growth, onto a more slow and steady trajectory, which is great news," Zillow chief economist Stan Humphries said. "As appreciation cools and more inventory comes on line, buyers will start to gain a more competitive advantage."
The Case-Shiller 20-city index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The August figures are the latest available.
Nineteen of the 20 cities tracked by the index saw their yearly price gains slow in August. Cleveland was the only city where prices increased more rapidly. Prices rose by the most in Miami, which saw a 10.5 per cent increase.
On a month-to-month basis, the 20-city index rose 0.2 per cent in August from July, down from 0.6 per cent in the previous month. Home prices fell 0.4 per cent in San Francisco, its second straight monthly decline and biggest drop in more than two years. The monthly price changes aren't adjusted for seasonal variations, such as a slowdown in home buying in the fall.
Mortgage rates have fallen for five straight weeks and the average rate for a 30-year loan has dropped below 4 per cent. It was 3.92 per cent last week. That makes homes more affordable for potential buyers, who are otherwise struggling with stagnant wages and tight credit standards.
Home sales have weakened partly because investors are withdrawing from the market, after sharply bidding up prices in many cities. Investors accounted for 14 per cent of sales in September, down from 19 per cent a year ago, according to the National Association of Realtors.
Individual home buyers have begun to take up the slack. That pushed sales of existing homes higher in September to an annual pace of 5.17 million. Still, that's just below the roughly 5.5 million that is consistent with a healthy market.