Charlotte-area home prices in October posted their biggest annual gain in 26 years, according to a report Tuesday. But the big increases could slow as investors become less active in the market and year-over-year comparisons become more difficult, Realtors and economists said.
The region’s home prices climbed 8.8 percent from a year ago, according to the latest numbers from the Standard & Poor’s Case-Shiller index. That’s the biggest annual increase since the city joined the widely watched index in 1987.
On a monthly basis, Charlotte home prices increased 0.6 percent from September, reversing a trend from the previous month. Charlotte was the only city to post a decline from August to September, as prices fell 0.2 percent.
The Charlotte region has posted year-over-year price increases since March 2012, making October its 20th consecutive month of annual gains.
“After a protracted period of challenging real estate markets, it’s not unusual to have a significant rebound,” said Eric Locher, the 2013 president of the Charlotte Regional Realtor Association.
“It’s also not unusual to have a little bit of slowing down in that rebound. So we will probably see going forward smaller increases, but we anticipate that ’14 will continue to be a good year.”
Nationally, home prices posted their biggest annual gains since February 2006, as a composite index of 20 cities and a separate index of 10 cities rose 13.6 percent from a year ago. The increase marked the 17th straight month that both indices rose.
But on a monthly basis, the two benchmarks climbed only 0.2 percent.
In October, 10 of the 20 U.S. cities posted monthly gains, while nine showed declines and New York remained flat. Charlotte and Miami were the only two cities to show an acceleration in their month-to-month gains.
David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said many cities have been showing very high rates of annual change in the past six months, so it’s not a surprise to see Charlotte hit new heights. But he added that monthly price increases have been slowing since the spring.
“My sense across all the cities and nationally is it’s going to begin to ease back and taper off,” Blitzer said in an interview. “We wouldn’t want to try to sustain this forever. We tried that once, and it didn’t work out too well.”
Improvements in the housing market have been driven by the Federal Reserve’s bond-buying program, which aimed to keep mortgage rates low, and by overall improvement in the economy, Blitzer said. The Fed’s recent decision to slow its bond purchases – and the impact on mortgage rates and the economy – will be a key factor for the housing market going forward, he said.
“Nationally, I think home prices will continue to rise but at a more modest pace,” he said. “Next New Year’s, we’ll probably be looking at something in single digits – 5, 6, 7, 8 percent – but still going up.”
The housing market is positioned much better to handle a slowdown in prices than after the last boom, he added, because homeowners have used much less debt to buy their houses.
“Even if the prices suddenly turn bad – and I certainly don’t think they will – the overall economic damage this time would be a lot more bearable than it was,” Blitzer said.
Investor purchases slowing
The Charlotte real estate market began to turn around in 2013, but some Realtors are now starting to report a slowdown in price appreciation, said Mark Vitner, an economist in Charlotte for Wells Fargo Securities.
Price increases should start to tail off because comparisons to the previous year won’t be as favorable as they were earlier this year, he said. The first half of 2013 was also the peak period for outside investors buying up homes in the region, he said.
In July, an Observer investigation found that Wall Street-backed investment groups had emerged as a new breed of homebuyer in Charlotte, snapping up homes in middle-class neighborhoods across the city to turn them into rentals.
“When we get into early 2014, the year-to-year price appreciation will probably slow down to 5 or 6 percent,” Vitner said.
In the coming year, the housing market will have less support from the Fed, and investors will likely become a smaller percentage of buyers, Vitner said. The market is still missing traditional first-time home buyers and “trade-up” buyers who have found it more difficult to move because they lack sufficient equity in their current homes.
“In 2014,” he said, “the housing market is really going to have to find a way to stand on its own.”
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