Real Estate

Housing takes a breather: Why that's good

Affordability concerning home buyers
Affordability concerning home buyers

The housing market is cooling off, but that may be just what it needs for a healthier recovery in 2015.

Much like an athlete in training, rest is just as important as activity. Home prices overheated in the early stages of the housing recovery, and now they are taking a break. That may be just what is needed to get buyers back into the market this coming spring.

Home prices are still higher than they were a year ago, up 4.5 percent in October, according to a new report from Black Knight Financial Services, but the gains are shrinking every month. Just nine of the 20 largest states in the U.S. saw positive monthly movement, as did just half of the 40 largest cities.

A "for sale" sign is seen in front of a home in Miami.
Getty Images

Home sales also fell in November, according to several sources, not necessarily due to a lack of buyers, but because of a dearth of homes for sale. There were nearly 28 percent fewer listings in October than there were in September, according to Redfin, a real estate brokerage. While a seasonal decline is typical, the surprise was a drop in listings from the same time a year ago, down 1.5 percent. That is the first annual drop in inventory in all of 2014. Even more relevant is the type of listings available.

"Buyers are certainly concerned about a lack of homes for sale, but a lack of affordable homes is an even larger concern," according to a survey by Redfin. "Just 11.3 percent said their biggest obstacle was 'lack of homes for sale,' while 32.6 percent cited their biggest obstacle as 'affordability in the area I want to buy.' The survey marked the first time since 2012 that buyers were more concerned about affordability than lack of inventory."

The only growth in November home sales was on the higher end of the market, in homes priced well above the median national home price of $205,300. Sales on the lowest end of the market, where investors are strongest, fell 16 percent in November, according to the National Association of Realtors (NAR).

Read MoreHome prices and supply map

"Rising home values are causing more investors to retreat from the market," noted Lawrence Yun, the NAR's chief economist in a report last week.

Sales will likely not strengthen in December, despite historically low mortgage rates., an online auction company, is predicting sales will be flat compared with November's unexpectedly low results.

"In a month where consensus forecasts were all too optimistic, we are reminded that the housing market is recovering in fits and starts, and there remain significant headwinds," said Executive Vice President Rick Sharga.

Read MoreMost desirable real estate markets

In 2013, national home prices rose 11 percent from January to October, according to the S&P/Case Shiller index; this year they are on pace to rise less than half that. That is good news for cash-strapped buyers, and not terrible news for sellers. Prices are still positive in general, and more buyers in the market will help keep them positive and likely incite more sellers to list their homes, especially in the usually strong spring season.

A few warnings, however, for the new year: Interest rates will likely move higher, albeit remain in an historically low range. In today's tougher mortgage market, small rate moves have a bigger effect than they have in the past because banks require borrowers to have stronger personal finances overall. Even low down payment loans, now being offered by Fannie Mae and Freddie Mac, are harder to qualify for than products of the past.

And then there is the freak-out factor. Prices in some markets are poised to go negative in the short term. Connecticut is the first state to see that, according to Black Knight Financial Services. If prices were to dip on a national level year over year, even if just for a month or two, that could spook buyers and sellers alike.

Read More5 things to watch in housing in 2015