U.S. Home Prices Rise but Outlook Dims

1 09 2010

U.S. home prices continued to rise in June, according to the S&P Case-Shiller indexes, but gains decelerated as a tax credit wound down.

A broader Case-Shiller index, which covers the entire U.S. and is released quarterly, gained 4.4% in the second quarter from the first three months of 2010 and 3.6% from a year earlier.

The Case-Shiller data only cover the period through June. Sales of both new and existing homes plunged in July, leaving a high supply of homes with few buyers to pick them up.

“With recent news on housing and home sales…it’s not clear that we’re going to continue this upward movement we’ve seen in the last few months,” said David Blitzer, chairman of the S&P index committee.

The market’s strongest rebound came in recent months, as home buying surged ahead of the April 30 deadline for signing contracts to receive a federal home buyers’ tax credit valued at as much as $8,000.

The deadline for contract closings was originally set for June 30 but was extended through Sept. 30.

The tax credit shifted sales to earlier in the year, creating a lull in purchasing activity during the summer months that is expected to stretch at least into the early fall. That is likely to push prices down again in many markets later in the year as a still-high rate of foreclosures adds to an already hefty supply.

Hesitancy among buyers, due to the weak economy and fears of another step down for prices, is creating substantial risks for the market.

“You’ve got a whole bunch of people who are sitting, waiting in the wings to get into house buying because they know it’s cheap, they know interest rates are low, they know it’s a highly subsidized investment,” said Wellesley College economist Karl Case, who developed the house-price index with Yale University economist Robert Shiller. “If they stay out because they’ve become a little bit more nervous, it can mean the whole market moves.”

Mr. Shiller said the overall economy also risks reverting back to recession due to weak confidence—among consumers and businesses—and high unemployment, which in turn holds back housing demand.

“It just kind of seems people are in a wait-and-see attitude so that we won’t see a massive improvement in the job market,” he said. And with support from fiscal stimulus waning, “it looks a little bit precarious right now.”

From mid-2006 to spring 2009, house prices tumbled 32.6%, according to the 20-city Case-Shiller index. With the recovery through June, prices stood 28.4% below the July 2006 peak.

In June, 17 of 20 metropolitan areas saw home prices increase from the prior month, while Las Vegas fell 0.6% and both Phoenix and Seattle were flat. The strongest monthly gains came in Chicago, Detroit and Minneapolis, each rising 2.5% from the prior month.

In the 20-city index, home prices were up about 48% since January 2000. Las Vegas has nearly returned to its January 2000 level, while Atlanta and Cleveland showed only small gains over that period and Detroit was down 30%. Prices in the Washington, D.C., area remained 86% above where they started in 2000, followed by a 76% gain in Los Angeles and 73% in the New York metro area.

Source: The Wall Street Journal

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