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Home prices increase in 15 major cities, with Washington among the leaders


(Photo credit: Getty Images)

By Ariana Eunjung Cha

U.S. single-family home prices in major cities saw a modest increase of 4.2 percent in the second quarter from a year earlier, but economists cautioned that the bounce was likely due to the final days of the tax credit and that prices would likely fall, perhaps dramatically, in the coming months.

Of the 20 U.S. cities covered by Standard & Poor's Case-Shiller index of home prices, 15 saw an improvement in year-over-year prices.

San Francisco led those with gains with a 14.3 percent jump in prices, followed by San Diego with 11.2 percent growth, Minneapolis with a 10.7 percent increase and Washington with a 7.3 percent recovery.

Las Vegas, where foreclosure signs were seen in practically every neighborhood during the worst of the crisis, remained weak. Prices were down 5.2 percent.

The unexpectedly high increase was good news--economists surveyed by Bloomberg had expected a 3.5 percent advance--but the nation's housing sector worries are far from over.

Sales have tumbled since the tax credit expired despite a large inventory of homes on the market and mortgage rates that continue to fall to record lows. Homebuyers had to sign contracts by the end of April to be eligible for the credit and close their transactions by Sept. 30.

Because the Case-Shiller index measures repeat sales of homes in a rolling three-month average, the June data captured some transactions in April and May.

"The report shows the ship is dead in the water now that the homebuyer tax credits have expired," said Mitchell Hochberg, principal with Madden Real Estate Ventures, said in a research note.

The effect of the end of the government incentives became apparent last month: The National Association of Realtors said sales of previously occupied homes plunged in July to the lowest level in 15 years and the Commerce Department reported that sales of new homes in July fell to their lowest level in 40 years.

That grim picture of the housing market painted by home sales and the optimistic one by home price points to an imbalance in supply and demand that they say cannot be sustained.

HSBC economists wrote in their weekly note, "Measures of U.S. house prices could be set to soften as the data begin to capture more of the transactions that occurred after the homebuyer tax credit expired at the end of April." JPMorgan Chase chief U.S. economist Michael Feroli also said, "whether the softer trend in home sales results in lower house prices is the critical question for the outlook."

Paul Dales, U.S. economist with Capital Economics predicted that "now that home sales have fallen through the floor, it is only a matter of time before prices fall back."

Karl Case, Professor of Economics at Wellesley College and Founding Partner of Fiserv Case Shiller Weiss, Inc., pointed out in a call with analysts Tuesday morning that despite the recent increase, housing in the longer-term has gotten significantly cheaper.

Nationwide, prices are 28 percent off their peak in July 2006 but they are up 6 percent from the low in April 2009.

"It's down from the peak an average of something on the order of 30 percent. If you take a 30-year fixed interest rate in the low 4s, you take a monthly payment down by roughly half," Case said.

"It's the best affordable housing program we've ever had in this country," Case said.

By Ariana Eunjung Cha  |  August 31, 2010; 9:28 AM ET
Categories:  Housing  
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I'm looking to move up, but not while prices are moving up. I think I'll wait until the dead of winter. Maybe prices will have fallen, maybe even into a reasonable and affordable range.

Posted by: Anonymous | August 31, 2010 10:33 AM | Report abuse

So wait until after September 17.

Following the astonishing market plunge around then, the price of homes ought to drop like a stone from orbit.

Posted by: thardman | August 31, 2010 10:40 AM | Report abuse

I'am so glad I sold my home, with home owners Insurance will sky rocket with Government having their way as saying everyone is on beach front proptery to raise Insurance. To pay for Katrina that happened 5 years ago. I don't see how anyone can afford to own a home with gas prices as they are, health insurance as they are, home owners Insurance as there are gonna be. Taxes are outragious on gas there has to be Executive Order to stop each state from Taxing the hell out of Americans. Only the Elite Rich can Stop this madness. We need a mircle to help everyone around the worlds epic economics !

Posted by: Anonymous | August 31, 2010 10:55 AM | Report abuse

As I read alot of articles on the falling housing market. No one has said that its virtually impossible to get a loan right now. The Feds have changed credit score requirements on FHA loans, and totally revamped the rest of the process on April 30th. This is why people are not buying because they CAN'T. I understand that its suppose to help the banks but between people loosing jobs, foreclosures and no one being able to buy what exactly do they expect. The interest rate could be 0.5% and if you don't have $300k saved, in cash you are out of luck. Fix the lending process to include people with credit issues that are fixable, stable jobs and give them loans. Nothing else will fix this problem it will only get worst and worst.

Posted by: Tee2396 | August 31, 2010 11:20 AM | Report abuse

After the Dodd-Frank bill I feel so confident in the Government that we will not have a "boom-bust" economy anymore -- these guys are simply amazing ... and sometimes we just need to trust the professionals.

So, now we had this "mini-boom" in house prices and demand caused by a "tax" credit from Washington -- a few years back (feels like ages ago now) the Government created a full blown housing bubble by way of Fannie, Freddie, Tax Loop Holes to encourage home ownership ... but after the Frank-Dodd bill we won't ever see a boom-bust in the US economy.

.... The tax credit pay back and the fall in prices should not be viewed as a "bust" .... because after the Frank-Dodd bill ... we cannot have "booms & busts" ... what a joke!

Posted by: free_np | August 31, 2010 12:19 PM | Report abuse

This recession stems from the popping of three bubbles in 2007: the oil and energy bubble, the housing bubble and the credit bubble. Wall Street speculation with derivatives filled these bubbles with too much air and they burst. The result was a massive wave of foreclosures, bankruptcies, business closures, layoffs and defaults. Millions more people are homeless and lack resources of any kind to buy anything. What's left of the middle class is living paycheck to paycheck, if they're lucky enough to have one.

So our consumer economy lacks enough consumers to prompt small retail businesses to hire that extra person. Big business is resorting to share buybacks and buyouts of competitors to spend their cash pile, instead of building factories in the USA to return jobs from overseas and create an export economy, like China, Japan and Germany have. Hewlett-Packard, which has fired 50,000 American workers over the past two years and moved operations overseas, is spending $10 billion to buy back its own shares. That investment creates no long-term value for the shareholder, it just wastes $10 billion. Instead, H-P should increase its dividend, so the money goes into the hands of shareholders, who hopefully then would invest it.

So it looks like American business is turning its back on their home turf and looking overseas to conduct business, a process than started in earnest in the 1980s with Republic Party changes in tax laws. Now, our government should invite foreign corporations to build factories here. Many major foreign companies already have plants in the USA, including China's Haier.

Posted by: mongolovesheriff | August 31, 2010 12:21 PM | Report abuse

We do realize, don't we, that fluctuations in home prices where there is little volume, are more unreliable? Just as the DOW or S&P sometimes makes seemingly large moves on low volume, and is relatively meaningless, so it goes for home values.
When volume is low, any sale of a more expensive property tends to jack the average, just as an increase in sales of lower priced homes tends to drop the running average.
Real estate remains overvalued in many markets, particularly where the house-flipping industry, a major contributor to the housing bubble, created the largest spikes. Folks in those areas are in for a very long dry spell, waiting for recovery.

Posted by: OldUncleTom | August 31, 2010 12:26 PM | Report abuse

It was like watching a slow motion train wreck seeing developers build, build, build in 1999-2005. Where did they think all those people were going to come from? Didn't care! Every one of them was in it for themselves. Typical Republicon party. Well now it's over and guess who gets to clean up the elephant dung ... again. I hope the 'cons get elected again and finish off the country for good. That'll finally teach the idiots not to vote them in again.

Posted by: slavin2 | August 31, 2010 12:45 PM | Report abuse

@mongolovesheriff: I agree with much of what you say, but I don't see much difference between giving $10B to shareholders as dividends and giving $10B to shareholders as they sell their share back to HP. But it was years ago that HP stopped being HP and became just another rapacious company.

Posted by: Anonymous | August 31, 2010 12:50 PM | Report abuse

mongolovesheriff: Excellent analysis, however, I do not think that foreign companies outside of the automotive sector will invest in plants in the US. One way or another, sooner or later, the US will have to re-industrialize itself or face high, chronic, and structural unemployment with its attendant social problems for decades. The weakness of a service economy is palpable to anyone with any blood in their brain.

Posted by: Anonymous | August 31, 2010 1:46 PM | Report abuse

"It was like watching a slow motion train wreck seeing developers build, build, build in 1999-2005. Where did they think all those people were going to come from? Didn't care! Every one of them was in it for themselves. Typical Republicon party. Well now it's over and guess who gets to clean up the elephant dung ... again. I hope the 'cons get elected again and finish off the country for good. That'll finally teach the idiots not to vote them in again.

Posted by: slavin2"

Unfortunately, I do not believe even that will force the American public to stop voting against their interests. They are waiting for a revival of the boom times, and they will drink deeply from the bitter cup of woe. How can employment increase when we do not make anything? Both the Democrats and the Republicans are neo-cons, and this country is finished..

Posted by: Anonymous | August 31, 2010 1:50 PM | Report abuse

It may be a good time to buy, but only for people with equity or 20% in cash. If you are just starting out in life and have to go save $50-$100k you are not going to be able to buy, no matter how good the housing deals are. There are many people in this situation, especially in the markets that are up like San Francisco and Washington. No easy credit, no govt help, no growing housing market. It is that simple.

Posted by: Anonymous | August 31, 2010 1:54 PM | Report abuse

It's a new day. No more buying a big house with a big mortgage to make a big killing on appreciation. No more assuming your house is a piggy bank for the future. The good more need to buy/charge a lot of stuff to fill up a big house! Better news...more farm land left to raise free range chickens...Whole lot of good news!

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