US home prices decline less than forecast

Low borrowing costs and government tax credits help lift home sales this year

(NEW YORK) Home values in 20 US metropolitan areas declined less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating.

The S&P/Case-Shiller home-price index fell 13.3 per cent in July from a year earlier, the smallest drop in 17 months, the group said here on Tuesday.

Adjusted for seasonal variations, the gauge rose 1.2 per cent from the prior month. Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices. Stability in real-estate values and rising stock prices may help set the stage for a recovery in consumer spending that accounts for two thirds of the economy.

'The firming of prices of the last few months should allow the beleaguered US consumer to take some heart that they are seeing some benefit from the end of the recession,' David Semmens, an economist at Standard Chartered Bank in New York, said before the report. 'We remain cautious in calling an end to the housing crisis as record levels of foreclosures still are coming onto the market.' The index was forecast to fall 14.2 per cent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 per cent to 15 per cent. The measure fell 15.4 per cent in the 12 months ended in June.

Year-over-year records began in 2001 and the gauge has fallen every month since January 2007.

All 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year price decrease in July than in the prior month. Las Vegas showed the biggest plunge at 31 per cent, followed by Phoenix at 29 per cent. Cleveland showed the smallest decline at 1.3 per cent.

Compared with the prior month, 17 of the 20 areas covered showed an increase, led by a 3.1 per cent jump in Minneapolis and a 2.9 per cent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 per cent.

Combined sales of new and existing homes have risen for four out of the last five months, signalling the worst of the housing crisis is over.

Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.

Fed policy makers last week said they would keep the benchmark lending rate near zero 'for an extended period', while noting that the economy and housing had strengthened. They also said they would slow the central bank's purchases of mortgage debt and extend the programme through the first quarter of 2010 in order to keep lending rates low.

Mounting foreclosures present a risk of renewed price declines as more homes are thrown onto the market. Foreclosure filings in August exceeded 300,000 for the sixth straight month, according to data from RealtyTrac Inc. A total of 358,471 properties received a default or auction notice or were seized last month, 18 per cent more than a year earlier. -- Bloomberg

Source: Business Times, 1 Oct 2009