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Home Prices in 20 U.S. Cities Climb for Third Consecutive Month
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By Shobhana Chandra

Oct. 27 (Bloomberg) -- Home prices in 20 U.S. cities rose in August for a third consecutive month, bolstering the case that an economic recovery is at hand.

The S&P/Case-Shiller home-price index climbed 1 percent from the prior month on a seasonally adjusted basis after a 1.2 percent increase in July, the group said today in New York. From a year earlier, the gauge was down 11.3 percent, less than forecast.

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

“Home prices are coming around,” John Herrmann, president of Herrmann Forecasting in Summit, New Jersey, said before the report. “Demand is picking up. Step by step, the housing recovery will contribute to growth.”

The index was forecast to fall 11.9 percent from August 2008, after a 13.3 percent drop in the 12 months ended in July, according to the median forecast of 33 economists surveyed by Bloomberg News. Estimates ranged from declines of 11 percent to 13.3 percent. Year-over-year records began in 2001.

The gains over the last three months have been the strongest since the three months ended in December 2005.

Broad-Based Improvement

Nineteen of the 20 cities in the S&P/Case-Shiller index showed a smaller decline year-over-year than in July. Dallas showed the smallest drop since August 2008, at 1.2 percent, while Las Vegas showed a 30 percent decrease, the most of any city.

Compared with the prior month, 15 of the 20 areas covered showed an increase while four showed a decline. The biggest month-over-month gain was in San Francisco, which showed a 2.6 percent gain.

In the latest evidence of rising demand, existing home sales in September jumped to a 5.57 million annual rate, more than economists forecast and the highest in more than two years, according to data from the National Association of Realtors issued last week.

Housing and manufacturing are leading the stabilization in the economy, the Federal Reserve said in the Beige Book survey of conditions in its 12 district banks during September and early October.

Fed Regions

“Most districts reported that housing market conditions improved in recent weeks, primarily from a pickup in sales of low- to middle-priced houses,” the Fed said.

One risk to the emerging stabilization is foreclosures, which worsen the property glut. Foreclosure rates will climb through late 2010, peaking only after the unemployment rate reaches 10.2 percent in the second quarter, Jay Brinkmann, chief economist at the Mortgage Bankers Association, said this month.

Unemployment, which is projected to exceed 10 percent by early 2010, according to the median estimate in a Bloomberg survey earlier this month, will also limit demand. Economists and industry groups are among those projecting home sales will also cool in the absence of the $8,000 credit for first-time buyers, due to expire Nov. 30. Lawmakers are debating extending the credit.

The Standard & Poor’s Supercomposite Homebuilding Index has climbed 22 percent since the beginning of July on the improving outlook for housing, compared with a 16 percent increase in the S&P 500 index. The builder index fell yesterday on concern that the tax-credit program may not be extended.

“The residential housing market appears to have stabilized, but it has done so at a very low level,” William Foote, chief executive officer of USG Corp., North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

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

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Theres still too much supply on the market. Nothing falls down perfectly straight. Theres always upticks along the way. I see this as a small pop will be back down at the old bottoms in the housing market again.

I agree, a lot of the buying is a result of first time homebuyers stimulus and wealthy individuals who have been scared out of the stock markets and want to either rent to the poor and middle class or attempt to profit off of a quick flip. After the stimulus runs out an investors realize the renters pool has no cash and little prospects they may not be as willing to buy or hold more property.

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