The pace of home price appreciation has begun to slow, according to data released Thursday from the online real estate marketplace Trulia.

Trulia uses asking prices and rents to estimate housing prices as they are right now, making it a better real-time gauge than other measures like the Case-Shiller Index, which is far more backwards looking. Trulia’s latest numbers have home prices increasing 8.1% year-over-year in June, a couple points lower than the most recent Case-Shiller data.

But even though home price appreciation has begun to slow, the U.S. is quickly moving from a point where it should be cheering home price appreciation to where it’s a sign that homes are getting too expensive. After all, home values have basically recovered to their pre-bubble levels. According to Standard & Poor’s Chief Economist Beth Ann Bovino, home prices have returned to their long-term average of 260% of average household income. This is far below the pre-bubble peak of 400%, but those prices were unsustainable.

Meanwhile, rental prices continued to rise by 5.5% over last year, with rent increasing faster than wages in each of the 25 largest metro areas. Here’s Trulia Chief Economist Jed Kolko:

“Rent increases outpaced wage increases in all of the 25 largest rental markets. Rents rose more than 10% year-over-year in Miami, Oakland, San Francisco, San Diego, and Denver. Among these five markets with the largest rent increases, all but Denver are among the nation’s least affordable rental markets. The median rent for a 2-bedroom unit costs more than 40% of the average local wage in these markets. The least affordable rental market is Miami, where a 2-bedroom typically rents for 62% of the average local wage. At the other extreme, a 2-bedroom rental costs just 24% of the average local wage in St. Louis.”

In other words, the affordability crisis is widespread and getting worse in places where rent is already unaffordable. Part of this dynamic has to do with the lag between the housing crisis and home builders ramping up supply where demand is strong. Take a look at this chart via Calculated Risk, which shows single-family and multi-family housing starts over time:


Builders have begun to construct more homes, especially the multi-family variety. This trend reflects builders’ belief that there will be less demand for single-family homes from the generation now entering the workforce, but even multi-family construction remains mired at levels not seen in 25 years.

This problem will likely become less severe over time, as consumers continue to work off debt from the financial crisis and builders and banks become more confident in building and financing homes. But the government could offer a helping hand, too. On the federal side, government-backed Fannie Mae and Freddie Mac need to take a hard look at forgiving some of the debt of underwater home buyers. And local governments should lessen restrictions on building so that home builders can construct homes where demand is greatest.