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Home Prices Start Easing, to the Relief of Experts

A steep gain in home prices in many markets that helped lift millions of Americans out of the red on their mortgages is now markedly slowing, with new data from the Standard & Poor’s/Case-Shiller national home price index on Tuesday showing that the annual growth in prices had eased in March to 10.3 percent, from the previous year’s increase of 11.4 percent.

But analysts said that the softening of price gains, rather than a worrisome trend, may actually be welcome news. Double-digit increases cannot go on forever, and many economists are using words like “sustainable” and “stable” to describe the slowdown, saying the market is becoming healthier.

Foreclosures make up a smaller percentage of sales, and the higher prices have caused investors to back off, leaving the bigger question of whether housing is affordable and mortgages are accessible to average families that want to buy. First-time home buyers still make up less than 30 percent of the market, according to the National Association of Realtors, while the number of all-cash buyers — not just investors, but older people who are downsizing after the sale of a larger home — has remained elevated.

Those factors will help curb any potential new bubbles, said Mark H. Goldman, a real estate expert at San Diego State University. “Here in San Diego, we have a real shortage of inventory, yet prices are softening,” he said, adding that houses in the area may have been priced too aggressively. “A big factor on home price appreciation is affordability.” Prices in San Diego rose 18.9 percent between March 2014 and March 2013, according to Case-Shiller. More moderate increases may give buyers’ incomes a chance to catch up.

Of the 20 cities that Case-Shiller tracks individually, all had double-digit price increases in that time period except Boston, Charlotte, Cleveland, Denver, New York and Washington, which had single-digit increases. In some cases, the cities hit hardest in the housing bust had the biggest gains. Las Vegas, where home prices rose 21 percent, led the list. Cities where demand has accelerated and housing supply is sharply limited by geography and other factors, like San Francisco, also posted large gains. Prices soared there by 21 percent, according to the measure.

Eighteen cities are still below their peak prices during the housing bubble; only two — Denver and Dallas — have returned to the previous levels.

But analysts say that the prices at the height of a bubble should not be considered a benchmark. Compared with March 2004, a decade ago, home prices in 14 of 20 cities are now higher. That trend was good news for the four million families who regained some equity in their homes last year, according to CoreLogic. But for the 6.5 million families who still owe more than their home is worth, many of whom bought or refinanced at the height of the market, the current slowdown is likely to delay the point at which their homes will be above water.

Month-to-month price changes are much more volatile than year-over-year changes, so economists were skeptical when Case-Shiller showed a much larger-than-expected gain between February and March. Nineteen of 20 cities showed higher prices, while prices in New York actually contracted 0.3 percent. “The Case-Shiller numbers contradict all the other housing market numbers we follow, which show activity and home prices slowing or falling outright since mortgage rates surged last spring,” Ian Shepherdson of Pantheon Macroeconomics wrote.

Indeed, price growth appears to have peaked in several cities, particularly in the South and West, where large inventories of foreclosures have already been absorbed, economists at IHS Global Insight wrote. They predicted that in response, builders would step up the construction of new homes.

Analysts at Capital Economics also forecast positive effects from the slowdown.

“Slowing house price appreciation should not be seen as a sign that the housing recovery is hitting the buffers. In fact, it will have the opposite effect,” they wrote. “A slowdown in price gains closer to the rate of income growth will prevent housing becoming overvalued, and therefore support a further rise in home sales and housing starts.”

Still, home buyers have pulled back sharply from the market since rock-bottom interest rates began to rise about a year ago, even though they remain low by historical standards. In April, the number of sales of existing homes rose for the first time in four months, and the uptick was only modest. The pending home sales index declined for nine months before inching into positive territory in March, the most recent month available. Sales of new homes declined sharply in March, but bounced back in April. On Tuesday, Zillow said mortgage rates had fallen below 4 percent for the first time since last October.

But housing experts emphasize that the biggest drivers of the market are more fundamental than prices, mortgage rates or things like student loan debt, often cited as a reason more young adults are unable to buy for the first time. People buy homes when they have good jobs and rising incomes, they said.

“People can only buy,” Mr. Goldman said, “what they can prove that they can afford.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Home Prices Rising Less, to the Relief of Experts. Order Reprints | Today’s Paper | Subscribe

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