Home Prices See Slower Growth as Jobs Become Driving Factor

Home asking prices grew last month at their slowest pace since summer, signaling a shift as improving economic fundamentals take their place as the main driver of the housing market's recovery.

Trulia reported Tuesday that asking prices for on-sale homes climbed a seasonally adjusted 0.5 percent month-over-month nationwide in January, marking the smallest monthly gain since August.

Year-over-year, asking prices rose 7.5 percent, down from a 9.3 percent increase a year earlier.

Trulia Chief Economist Jed Kolko says the slowdown reflects a change in the factors influencing price growth. While many markets have benefited throughout the recovery from a natural "rebound effect" after hitting their price trough, the fastest-growing markets are now the ones where job growth is in full effect.

"A growing economy fuels housing demand," Kolko explained.

Among the 10 metros with the biggest annual price gains—a list led by markets in Georgia and Florida—nine had at least 2 percent year-over-year job growth, according to Trulia. (The one outlier was Detroit, which came in at No. 10 with a 12.6 percent price increase despite a meager 0.3 percent gain in jobs.)

Furthermore, among those markets, four—Houston, Indianapolis, Denver, and Austin—experienced milder housing busts than others, seeing prices decline less than 10 percent from their bubble peak to their trough.

"Their price gains today don't reflect a rebound after a sharp fall," Kolko said.

This isn't the first time Kolko has pointed to job growth as a growing influence in asking home price appreciation. In a post reviewing asking price changes in July—which also happened to be a slow month for asking prices—he noted that the correlation between price changes and employment is "a strong and statistically significant relationship."

Reiterating his earlier post, Kolko says the shift is big news for the national housing market.

"For much of the recovery, the rebound effect was more closely tied to local price gains than job growth was," he said. "But today, things have reversed ... As home prices have increased and gotten close to long-term normal levels, and as investors and foreclosure sales have become a smaller part of housing activity, fundamental drivers of housing demand—like job growth—have taken over again."