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.
Ariana Eunjung Cha
August 31, 2010; 9:28 AM ET
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