By Nick Timiraos 

The U.S. housing market failed to provide the lift to the economy over the past year that many analysts expected. It enters a new year with few signs pointing to either a renewed breakout or a sharp slowdown.

New data released this week showed that contracts signed to buy previously owned homes rose to the third-highest level of the past year, the latest sign of how housing demand firmed up in 2014 after a sluggish start.

The National Association of Realtors said Wednesday that its index measuring pending home sales in November, reflecting sales that have gone into contract but haven't yet closed, rose 0.8% from October and 4.1% from a year earlier on a seasonally adjusted basis. That represents the largest year-over-year gain for the index since August 2013.

But as a whole, the housing market fell short of expectations amid tepid demand, rising prices and continued complaints from buyers about the quality of inventory. "The market overpriced itself this year, and buyers are very price sensitive right now," said Glenn Kelman, chief executive of real-estate brokerage Redfin.

Nela Richardson, the firm's chief economist, said they expect the market to be less competitive this year. "Homes that had four offers now have one," she said, although there is still "a lot of price pressure in a really small number of neighborhoods."

After a two-year rebound, housing demand faltered halfway through 2013 amid inventory shortages, rising prices and a sudden increase in mortgage rates. Demand stayed soft in early 2014, during a particularly cold winter, but improved in the summer, a period during which mortgage rates floated down.

The average 30-year fixed-rate mortgage stood at 3.87% for the week ended Wednesday, according to Freddie Mac, near its lowest level of the past year.

Sales of previously owned homes are running around 4% below the year-earlier level through the first 11 months of 2014. Still, sales climbed throughout the middle of the past year, from a 4.59 million seasonally adjusted annual rate in March to 5.25 million in October. They slid 6% in November to a 4.93 million rate, according to the National Association of Realtors.

News Corp, owner of The Wall Street Journal, also owns Move Inc., which operates a website and mobile products for the National Association of Realtors.

Sales of new homes have been essentially unchanged over the past year, falling far short of economists' expectations for double-digit gains in new home sales. That's happened in part because builders have focused on constructing larger, more expensive homes.

Broad sales measures don't fully capture other dimensions the housing market's recovery. In particular, the share of homes selling out of foreclosure accounted for as many as a third of home sales in 2012. The share of distressed sales has fallen sharply, to around 9% in recent months. The upshot is that traditional sales now account for a far larger share of the market--a sign of improvement.

Home prices tell a similar story. After falling nearly one-third from their peak in 2006, prices began rebounding sharply in February 2012 and since then have risen nearly 25% through October, according to the S&P/Case-Shiller index.

Some of the price declines were exacerbated by a glut of foreclosures. The subsequent rebound reflected increased investor demand for those bargain-priced properties, most of which were either quickly repaired and flipped for a profit or held off the market as rentals.

As foreclosures have faded and investor-purchasers stepped back from the market, price gains have slowed. In October, home prices had increased 4.6% from their year-earlier level, compared to a year-over-year gain of 10.9% in October 2013.

An open question in the coming year is whether price gains stabilize at those lower levels or whether they weaken further. Research firm Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.

But some market specialists say prices may need to give if sales are to rise. "In a few markets, there will be price declines," Mr. Kelman said, "and maybe in more than a few."

In expensive markets such as Southern California, "we have an affordability problem again," said Mr. Burns. "The market is flat."

Write to Nick Timiraos at nick.timiraos@wsj.com

News (NASDAQ:NWSA)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more News Charts.
News (NASDAQ:NWSA)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more News Charts.