Home Value Growth Continues to Slow in Q3

Home value appreciation in in third quarter slowed to its lowest annual pace in the last year, further quelling analysts' fears of over-inflation in the housing market.

Real estate data firm Zillow reported a 6.5 percent year-over-year gain in its Home Value Index for September, bringing the index up to $176,500. Annual home price appreciation peaked this year in April at 8.1 percent and has steadily fallen since then, the company says.

Zillow's chief economist, Dr. Stan Humphries, said the latest report comes as a relief compared to last year, when the market was experiencing unsustainable price growth that went well into the double digits in some areas.

"At this time last year, we were worrying about a number of frothy markets that looked like they could be on the edge of another housing bubble, places where homes were appreciating at more than 20 percent per year and where buyers' heads were spinning just trying to keep up," Humphries said. "Home values should continue to grow, but that growth will increasingly be driven by traditional market fundamentals like household formation and job growth, and less by artificial stimulants like decreased supply and widespread investor demand."

By the end of Q3 2015, Zillow anticipates home value growth will level off to about 3 percent annually, less than half its current pace.

Out of the markets posting the biggest slowdown in price gains, many were previously among the hottest metros of the recovery, particularly in California and the Southwest. For example, in Los Angeles, appreciation slowed from 18.5 percent annually in Q3 2013 to just 8.3 percent in the latest completed quarter.

The drop-off was more extreme in San Francisco, where appreciation slowed to 8.2 percent from 23.5 percent last year.

With the market cooling down, the company also expects the dynamic between buyers and sellers to shift. According to Zillow, there were 18.6 percent more homes on the market at the end of September than there were a year ago, giving homebuyers less competition to face.

The rise in inventory has also given home shoppers more room to negotiate: Nearly 37 percent of listings on Zillow in September had at least one price cut in the last month, up from 33.6 percent a year prior, the company reported.