As Prices Stabilize, Home Buyers Have An Incentive to Buy
Life + Money

As Prices Stabilize, Home Buyers Have An Incentive to Buy

REUTERS/Jonathan Ernst

Home prices rose at the slowest rate in more than a year in May, a positive trend for the housing market as real estate is becoming more affordable.

Asking prices for existing homes increased 8 percent in May compared to a year ago, the slowest rate increase in 13 months, according to a report released Thursday by Trulia, an online real estate sales company.

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According to Clear Capital, which released its own housing market report Monday, May marked the fifth consecutive month that national yearly home price growth has softened.

This is all good news for the housing market, since large price increases typically tend to fuel real estate price bubbles and encourage flipping and speculation.

Stable prices may not be a quick fix for the larger housing problem – but it’s still a healthy move for the market overall.

“It’s a good thing because a lot of first-time homebuyers have stayed on the sidelines,” said Greg McBride, chief financial analyst at “A moderation in the pace of home price increase is more sustainable.”

While it may prompt some people who had abandoned their real estate search to start looking at homes again, it’s still not enough to spur buying, according to some experts.

“Price gains are slowing, but 8 percent year-over-year is still a big increase and enough to hurt affordability,” said Jed Kolko, chief economist at Trulia, in an email. “A slowdown in price gains won’t be enough to turn millennials into first-time homebuyers.”

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Other key factors are missing. Low home inventories continue to constrain home sales, especially in market such as Boston, New York and Kansas City, according to the Federal Reserve’s most recent Beige Book, released earlier this week. In addition, millions of borrowers are still under water, the student debt level remains high, and the job market hasn’t yet fully recovered.

At the very least, though, the price increase slowdown reduces the risk of returning to a bubble: “Our Bubble Watch report shows that we’re not close to bubble territory,” said Kolko.

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