Home prices nationally posted their best year since 2005, but signs are growing that the housing rebound has stalled.
Prices in the 20 largest metro areas have dropped slightly for two months in a row, according to the S&P;/Case-Shiller index, a leading national home price gauge.
Demand is waning because of higher prices and mortgage rates, and home buyers have only modest expectations for price appreciation, said Robert J. Shiller, a Yale economist and co-creator of the index.
"It's not a time of great enthusiasm for a home purchase," Shiller said.
He even warned that prices could drop on an annual basis by the end of 2014 amid a retreat by institutional investors and a still-weak economy.
"I am not predicting that, I am saying it's a worry," said Shiller, who famously predicted last decade's housing crash.
The downbeat assessment comes after prices rose rapidly for much of last year. Rock-bottom mortgage rates supercharged demand and pushed up property values in America's biggest cities. Despite the recent slowdown, home prices in the 20 largest metro areas rose 13.4% over the year ending in December, according to the index.
The Case-Shiller data lag behind other indicators, which also have signaled falling demand. Home prices have risen far faster than incomes, pricing many buyers out of a market with few homes for sale.
In January, the National Assn. of Realtors reported that sales of previously owned homes plunged to the lowest level in 18 months, on a seasonally adjusted basis. The Case-Shiller data are not seasonally adjusted, so they reflect, in part, a typical winter slowdown.
Only six cities, including San Francisco and Las Vegas, saw prices climb in December from November. And 11 metro areas saw slower annual price increases in December compared with a month earlier.
Los Angeles posted a strong rise of 20.3% from December 2012 to December 2013, but that was smaller than L.A.'s November-to-November gain.
And December's year-over-year gain across the largest cities was the slowest since September.
"The strongest part of the recovery in home values may be over," said David M. Blitzer, chairman of the index committee at S&P; Dow Jones Indices.
The price slowdown has been welcomed by many. As prices soared early last year, so did fears of another bubble. Many economists now predict continued gains in 2014, although at a slower pace.
Zillow chief economist Stan Humphries called 2013 "an undeniably great year in housing" and pegged gains this year around 3% — a level he called "more sustainable."
"The market is gearing up for a spring home shopping season that should be a bit smoother for buyers, with less investor competition and marginally more inventory," he said.
Some real estate agents say they have already noticed spring's arrival. On Sunday, Amber Dolle held an open house for a three-bedroom in the San Fernando Valley priced at $499,000.
"We got two offers on it, and there must have been 70 people that came through," she said.
There are signs sellers are increasingly placing their homes on the market. Inventory remains very tight, but more homes were for sale nationally and across Southern California in January than a year earlier, according to Realtor.com.
The Case-Shiller index, created by Shiller and economist Karl E. Case, is widely considered the most reliable read on home values. The housing index, which uses a three-month moving average, compares the latest sales of detached houses with previous sales, and accounts for factors such as remodeling that might affect a house's sale price over time.
Some economists say a rapidly shrinking foreclosure crisis has distorted the index. With fewer foreclosed homes sold, recent price gains become exaggerated, they say.
Western cities — a favorite of deep-pocketed investors — continued to post the largest annual gains. Prices in Las Vegas rose 25.5% compared with December 2012; San Francisco 22.6%; and Los Angeles, which includes Orange County, jumped 20.3%.
"I am a little concerned," said Dean Baker, co-director of the Center for Economic and Policy Research. "It's hard for me to believe those price increases are justified by the fundamentals."
Amid those higher prices, investors have recently shown signs of pulling back.
In Phoenix, prices fell 0.3% from November, the first decline after 26 consecutive increases. The spring home buying season should provide better insight whether first-time and move-up buyers can fill the void. Would-be home buyers face a tougher challenge to adjust to higher prices than last decade, when credit was loose and standards were low.
Values shouldn't drop, though, said IHS Global Insight economist Patrick Newport. Few homes on the market and a depressed level of new construction will continue to support price increases, he said. "We are just not building enough homes."
And although Shiller expressed concerns prices could fall, he, too, predicted gains this year — just not as stark as buyers recently experienced.
The recent price run-up is small compared with what Americans saw last decade and homes aren't as expensive, Shiller said.
"I am less worried," he said, "than I was back in 2006."