Home-price index rose 0.3% from Nov ‘09, more than economists expected
Home prices in 20 US cities rose in December for a seventh consecutive month, indicating the industry at the heart of the worst recession since the 1930s is stabilising.
The S&P/Case-Shiller home-price index increased 0.3 per cent from the prior month on a seasonally adjusted basis, more than anticipated and matching the gain in November, figures from the group showed on Tuesday in New York. The gauge was down 3.1 per cent from December 2008, the smallest decline since May 2007.
Lower property values, rising incomes and government credits are making homes more affordable. A sustained recovery in housing still faces hurdles that include mounting foreclosures, a weak labour market and the eventual end of a Federal Reserve program aimed at keeping borrowing costs low.
‘It’s reassuring that we’re seeing stabilisation and outright increases in home prices,’ said Michael Feroli, an economist at JPMorgan Chase & Co, who accurately forecast the adjusted month-over-month gain. He said he expects prices to be ‘flat’ in coming months.
Economists surveyed by Bloomberg News anticipated that prices would drop 3.1 per cent in the 12 months to December, based on the median estimate of 27 projections. Estimates ranged from a decline of 5.3 per cent to a gain of 3 per cent. They also forecast a 0.1 per cent seasonally adjusted increase in December from a month earlier, the survey showed.
Stocks fell and Treasury securities rose after a separate report showed consumer confidence dropped in February to a 10-month low. The New York-based Conference Board said its index of sentiment slumped to 46, below the lowest forecast in a Bloomberg survey, from 56.5 in January.
The Standard & Poor’s 500 Index fell 1.2 per cent to 1,094.49 at 12.53 pm in New York. The yield on the 10-year Treasury note declined seven basis points to 3.72 per cent.
Compared with the prior month, 14 of the 20 areas covered showed an increase on a seasonally adjusted basis, while five had a decline. The biggest month-to-month gain was in Los Angeles, where prices rose 1.4 per cent. Home prices rose an adjusted 1.2 per cent in Phoenix, 1.1 per cent in San Diego, and 0.9 per cent in both Boston and Las Vegas.
Increased foreclosures and an unemployment rate that economists forecast will end the year at 9.5 per cent are obstacles to steady gains in housing prices. Rising foreclosures are adding to inventory and may discourage some builders from beginning construction.
A record three million US homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.
In an effort to bolster the housing market, President Barack Obama in November extended a tax credit for first-time homebuyers and expanded the programme through April 30 to include some current owners.
The end of Fed purchases of mortgage-backed securities, aimed at keeping borrowing costs low, represents another challenge for the industry. The programme is scheduled to expire by March 31.
‘The rebound in the housing market since April seems to be related to government efforts such as the homebuyer tax credit and the Fed’s purchase of mortgage-backed securities,’ said Robert Shiller, who co-created the home-price index, on Tuesday in a Bloomberg Television interview. ‘A lot of people are coming in buying because they think the recession has just ended.’
Mr Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, a former economist professor at Wellesley College, created the index based on research from the 1980s.
Some homebuilders are seeing gains ahead of the expiration of the homebuyer tax credit. DR Horton Inc, the second-largest US homebuilder by revenue, this month reported its first quarterly profit since 2007.
‘We expect our September quarter will be the most challenging as a tax credit support for home sales will have expired,’ said Donald J Tomnitz, president and chief executive officer, on Feb 2.
Lowe’s Cos, the second-largest US home-improvement retailer, on Monday posted better-than-forecast sales in the fourth quarter, signalling a recovery in the housing market. The Mooresville, North Carolina-based company said sales in stores open at least 13 months may rise as much as 3 per cent this year. ‘We don’t have the job losses at as large a rate as we had previously,’ chairman and chief executive officer Robert Niblock said.
Source: Business Times, 25 Feb 2010