U.S. Home Prices Rise for First Time in Three Years
July 28 (Bloomberg) — Home prices posted their first monthly gain in three years in May, a gauge of values in 20 major U.S. cities showed, reinforcing signs of stabilization in a market hammered by the worst slump since the 1930s.
The S&P/Case-Shiller home-price index rose 0.5 percent from April, the first monthly gain since July 2006 and biggest since May of that year, the group said today in New York. The measure was down 17.1 percent from May 2008, less than forecast and the smallest year-over-year drop in nine months.
Price declines may keep moderating as demand steadies and distressed properties account for a smaller share of transactions. Even so, rising unemployment, stagnant confidence and the loss of wealth caused in part by the drop in property values mean a rebound may be slow to take hold.
“After three years of this nasty housing recession, I think we’ve got to be pleased with such an improvement in a relatively short period,” said Harm Bandholz, U.S. economist at UniCredit Research in New York.
Economists forecast the index would drop 17.9 percent from a year earlier, according to the median of 32 projections in a Bloomberg News survey. Estimates ranged from declines of 17.5 percent to 18.3 percent.
Compared with a month earlier, 14 cities showed price gains, led by a 4.1 percent jump in Cleveland and a 1.9 percent increase in Dallas.
The price figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes.
Breakdown
Treasury securities pared gains following the better-than- projected report, and stock-index futures held previous losses. The yield on the benchmark 10-year note was 3.70 percent at 9:23 a.m. in New York compared with 3.72 percent at yesterday’s close. Futures on the Standard & Poor’s 500 index were down 0.7 percent to 972.70.
All of the 20 cities in the index showed a year-over-year price decrease in May, led by a 34 percent drop in Phoenix and a 32 percent decrease in Las Vegas. Dallas showed the smallest decrease at 4.1 percent.
“The pace of descent in home-price values appears to be slowing,” David Blitzer, chairman of the index committee at S&P, said in a statement. “This could be an indication that home-price declines are finally stabilizing.”
The report buttresses other measures that have shown a deceleration in price declines. The Federal Housing Finance Agency said last week that its purchase-only price index was down 5.6 percent in May from a year earlier, the smallest annual drop in 10 months.
Other Measures
The FHFA index is a national measure that tracks houses bought with mortgages purchased by Fannie Mae or Freddie Mac and excludes many of the foreclosure sales and properties bought with non-conventional mortgages. In addition to being limited to 20 areas, the S&P/Case-Shiller report also includes distressed properties and those bought with non-conventional loans such as jumbo mortgages.
“There isn’t one perfect house-price number, you want to look for consistency across all of them,” said Jonathan Basile, an economist at Credit Suisse Holdings Group Inc. in New York, said before the report. “When you’re looking for a turn, you want to see all of them start to turn.”
Foreclosure filings reached a record in the first half of the year, providing competition for homebuilders and pushing down the value of homes. Even so, figures from the National Association of Realtors show the share of distressed property sales may be easing.
Distressed Sales
The share of homes sold as foreclosures or otherwise distressed properties fell to about 31 percent in June, down from 45 percent to 50 percent seen earlier this year, the real- estate agents’ group said last week.
Combined sales of new and existing homes in June reached the highest level in eight months, according to figures from NAR and the Commerce Department.
Purchases are unlikely to rebound quickly as rising unemployment, which economists surveyed by Bloomberg forecast will top 10 percent by early 2010, threatens to scare away some buyers.
Declines in home prices and stocks cut household net worth by $13.9 trillion through the first quarter, according to figures from the Federal Reserve. The need to rebuild tattered finances has prompted Americans to limit spending and boost savings.
Slow Recovery
“We are preparing for this recovery to take a while to pick up steam,” Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., said in a conference call with analysts last week. The third-largest U.S. lodging company’s second-quarter earnings beat analysts’ estimates.
Federal Reserve policy makers have committed to $1.25 trillion program to purchase securities backed by home loans in an effort to put a floor under the housing market and lower borrowing costs. Those purchases, as well as direct government purchases of Treasuries, drove rate of 30-year mortgages to a record-low 4.78 percent in April, according to figures from Freddie Mac. Rates have since hovered around 5 percent.
Fed Chairman Bernanke said July 22 he cannot “guarantee by any means” that declines in home prices are over “but we have seen a few positive indicators.”
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
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