by Calculated Risk on 10/18/2013 08:44:00 AM

From Zillow: Housing Market Shows Welcome Signs of Cooling in Q3

The pace of home value appreciation nationwide is slowing, and has even turned negative in some areas. But rather than being a bad sign for housing, this slowdown was expected and is, in fact, welcome in a handful of markets, according to the third quarter Zillow Real Estate Market Reports.

The U.S. Zillow Home Value Index stood at $163,000 as of the end of the third quarter, up 6.4 percent year-over-year and 1.2 percent from the end of the second quarter. But national home values in September remained the same as in August, and the pace of monthly home value growth has fallen in each of the past three months. Among the top 30 largest metro areas covered by Zillow, half showed negative monthly appreciation at the end of the third quarter. As recently as July, all of the top 30 metro areas showed positive monthly appreciation, with none exhibiting a monthly pace slower than 1 percent month-over-month.
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"Far from being a negative sign, we’re relieved to see more noticeable signs of cooling in the market. If home values continued to rise as they have, relatively unchecked, we would almost certainly be headed into another bubble cycle, and nobody wants that,” said Zillow Chief Economist Dr. Stan Humphries. “This is more proof that the market recovery is entering a new phase, transitioning away from the bounce off the bottom we’ve been experiencing and finding a more sustainable level. This moderation should help consumers feel more at ease in their decisions to buy and sell, and will help keep the market balanced.”

The Zillow Home Value Forecast calls for annual appreciation rates to slow markedly over the next 12 months as moderation spreads, to an annual pace of 3.8 percent nationwide by September 2014.
emphasis added

With a little more inventory, and somewhat higher mortgage rates, a slowdown in house price appreciation makes sense.