Home Prices in 20 U.S. Cities Rise for Fourth Month

Nov. 24 (Bloomberg) -- Home prices in 20 U.S. cities rose for a fourth straight month in September, pointing to improvement in real estate that’s helping the economy emerge from recession.

The S&P/Case-Shiller home-price index increased 0.27 percent from the prior month on a seasonally adjusted basis, after a 1.13 percent rise in August, the group said today in New York. The gaugefell 9.36 percent from September 2008, more than forecast, yet the smallest year-over-year decline since the end of 2007.

Rising home sales, aided by government programs and a decline in mortgage rates this year, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Home buying and consumer spending may still be hampered by higher unemployment, which may prompt more foreclosures.

“The reduction of inventories we have seen has helped stabilize prices,” saidMichael Gregory, a senior economist at BMO Capital Markets in Toronto. “The reason you have to be a little more nervous or cautious is because some of the demand we’re seeing for homes was from a push to get the transactions to close in anticipation of the tax credit expiring.”

Stocks declined as a separate report on third-quarter gross domestic product from the Commerce Department showed consumer spending during the three months was weaker than first estimated. The Standard & Poor’s 500 Indexfell 0.2 percent to 1,103.70 at 10:44 a.m. in New York.

Economists’ Forecasts

Economists forecast the 20-city home-price index would decline 9.1 percent from September 2008, after a previously reported 11.32 percent drop in the 12 months ended in August, according to the median forecast of 30 economists in a Bloomberg News survey. Estimates ranged from decreases of 8.3 percent to 10.3 percent. Year-over-year records began in 2001.

The Federal Housing Finance Agency reported today that its purchase-only home price index was unchanged in September after a 0.5 percent drop in August. In the third quarter, home prices rose 0.2 percent from the previous three months, the agency’s figures showed.

The U.S. economy grew at a 2.8 percent annual rate in the third quarter, less than the government reported last month, reflecting a smaller gain inconsumer spending and a bigger trade deficit. Americans’ spending, which accounts for about 70 percent of the economy, rose at a 2.9 percent rate, compared with a previously reported 3.4 percent pace.

Corporate Profits

Corporate profits climbed by the most in five years, the Commerce Department in Washington also reported.

Nineteen of the 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year decline in home prices than in August.

Compared with the prior month, nine of the 20 areas covered showed an increase while 10 had a decline. The biggest month-to- month gains were in Detroit and Minneapolis, where prices increased 1.8 percent.

Existing home sales in October rose to the highest level in more than two years, National Association of Realtors data showed yesterday. The median sales price decreased 7.1 percent from a year earlier, the smallest decline in more than a year.

Housing has been among the industries leading to stabilization in the U.S. economy. To ensure the recovery in housing continues, President Barack Obama and Congress this month extended a tax credit of as much as $8,000 for first-time homebuyers until April 30, from Nov. 30. They also expanded it to include some current owners.

Purchase Applications

Concern about the looming expiration of the credit earlier this month weighed on builder sentiment and may have been the reason the Mortgage Bankers Association’s purchase applications index fell to a 12-year low in the week ended Nov. 13. The bankers group is scheduled to release last week’s applications report tomorrow.

While the erosion of house prices is starting to end, it will take “a considerable amount of time” for the housing market to recover fully, Federal Reserve Bank of Cleveland President Sandra Pianalto said in a speech Nov. 17.

“Though we have seen some signs that the worst may be over, the housing industry is not out of the woods yet,” Pianalto said at a housing conference sponsored by the Ohio Housing Finance Agency and Ohio Capital Corporation for Housing. “Nor is the broader economy.”

More Foreclosures

Two risks to stabilization in housing are rising unemployment and foreclosures. Foreclosures on prime mortgages and home loans insured by the Federal Housing Administration rose to 30-year highs in the third quarter, the Mortgage Bankers Association said Nov. 19.

Almost 23 percent of U.S. homeowners in the third quarter owed more on their mortgages than their properties are worth, according to First American Core Logic, a real-estate information company based in Santa Ana, California.

The unemployment rate rose to a 26-year high of 10.2 percent in October, according to the Labor Department. More joblessness may lead to more mortgage defaults, bringing more foreclosed properties onto the market and pushing down prices. Higher unemployment will also limit demand.

D.R. Horton Inc., the second-largest U.S. homebuilder, on Nov. 20 reported a fourth-quarter loss that exceeded analysts’ forecasts and said the housing outlook remains difficult.

“The thing that drives our business the most is job creation,” Chief Executive Officer Donald Tomnitz said on an earnings call for analysts. “If we look at the macroeconomic environment, it’s not good for us.”

Karl Case, an economist professor at Wellesley College, and Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, created the home-price index based on research from the 1980s.

Source: Bloomberg.net by Courtney Schlisserman

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