Standard & Poor's/Case Shiller Home Price Index

house on cliff

Home Prices on the Rise In April

Tuesday, June 29, 2010 - U.S. single-family home prices unexpectedly climbed in April from March, driven by a final sales push before tax credits expired, but signs of a sustained recovery have yet to emerge, Standard & Poor's/Case Shiller home price indexes showed on Tuesday.

This is the housing market’s largest year-over-year increase since September 2006. Economists were looking for a jump of 3.4%.

"Inventory data and foreclosure activity have not shown any signs of improvement," David Blitzer, chairman of S&P index committee, which publishes the price indexes. "Consistent and sustained boosts to economic growth from housing may have to wait to next year."

The S&P composite index of home prices in 20 metropolitan areas for April rose 0.4 percent on a seasonally adjusted basis, surprising economists who had forecast a 0.1 percent decline in a Reuter’s survey.

For March, the seasonally adjusted index was downwardly revised to a 0.2 percent drop, compared with unchanged previously. On an unadjusted basis, prices gained 0.8 percent in April following March's 0.5 percent drop. A 0.2 percent rise was forecast in a Reuter’s poll.

The 20-city index rose 3.8 percent in April from a year earlier, topping the expected 3.4 percent increase.

Home graph - june29,2010

"Most of it could be attributable to the (federal) tax credit, which pulled forward demand. Now demand is falling away," said Kevin Logan, chief U.S. economist at HSBC Securities.

Home sales have fallen precipitously in the weeks since the April 30 end of tax credits of up to $8,000, which pushed sales forward as buyers raced to lock in the incentive.

Last week, the government reported that new home sales fell in May to their lowest level on record, plunging 33 percent from the month before. That was the slowest sales pace on records dating back to 1963. Sales of previously occupied homes edged down 2.2 percent.

Also, homebuilders KB Home and Lennar Corp. both reported sharp declines in new home orders in the three months ended in May. Patrick Newport, an economist at IHS Global Insight, expects prices to resume falling through next year and lose another 6 percent to 8 percent. The declines will be widespread, he predicts.

"In two to three months, the indexes for almost all the cities will begin falling again," Newport said.

Applications to buy homes hover at 13-year lows.

Now economists will be eyeing carefully the impact of the tax credit’s expiration.

Nationally, prices have risen 3.8 percent from their April 2009 bottom. But they remain 30 percent below their July 2006 peak.


The overall price gains highlight the impact of the federal tax credits for homebuyers at the start of the traditionally strong spring selling season. Buyers rushed to purchase before the tax credits expired at the end of April. The numbers are likely to drop in the next report.

The tax credit fired up sales but also boosted inventory, adding to supply pressures already in place from record foreclosures.

"People have been listing their houses as the tone of the market has improved," said Pierre Ellis, senior economist at Decision Economics. "That may tend to limit price increases," and housing stability is critical for consumer spending, given stock market uncertainty.

Unemployment also remains stubbornly high at 9.7 percent and lending standards are tight, making homeownership unattainable for many borrowers.

Still, affordability is high, with prices down around 30 percent on average from 2006 peaks and mortgage rates touching record lows near 4-3/4 percent.

Home prices in April were at levels similar to late summer and early autumn of 2003, S&P said.

The tax credit-driven gains in April spurred month-to-month increases in 18 cities, compared with six in March. Only Miami and New York saw price erosion last month -- 0.8 percent and 0.3 percent, respectively.

Prices rose by at least 1 percent in 11 of the metro areas in April from March. New York posted a new cyclical low and has now fallen 21.7 percent from the June 2006 peak.

The rebound does bring with it a caveat, however; April marked the last month home buyers could qualify for the government’s homebuyer tax credit, which likely led sellers to hold the line on pricing. The increases also need to be viewed in light of the depressed 2009 levels.

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