Uptick belies forecasts for home prices
The Case-Shiller index rises in July, but economists expect a glut of foreclosures.
Economists said they expected weak growth in housing and a decline in home prices this year despite a report Tuesday indicating that home valuations crept up in July.
The Standard & Poor’s/ Case-Shiller index of 20 metropolitan areas showed that prices of previously owned single-family homes rose 0.6% in July from June and 3.2% over July 2009.
The closely watched index encompasses data from May, June and July. Although sales plummeted in July they were bolstered by popular federal tax credits for buyers in May and June. Other housing indicators, such as starts for new construction and some price measures, also have shown weakness.
“The housing market is in awful shape; it is probably as bad as it has been in 60 years,” said Patrick Newport, U.S. economist for consultancy IHS Global Insight. “You have weak demand, a lot of foreclosures and a big glut, and even though the Case-Shiller numbers were up for the month, we still think they are going to drop.”
Separately, an index of consumer confidence fell to a seven-month low in September after having improved in August, according to data released Tuesday, underscoring concern Americans have about the economy and their future prospects.
The market for previously owned homes swooned in July, with sales dropping 27% to the lowest level in more than a decade after the boost from the federal tax credit evaporated, according to the National Assn. of Realtors. That number improved somewhat in August, rising 7.6%, but was not enough to stir confidence that the housing market would recover robustly this year.
Celia Chen, a housing economist for Moody’s Economy.com, said she expected prices to fall as more banks step up their repossession of homes through foreclosure and put those properties back on the market. Lenders have been seizing houses at a record clip this year, taking back 95,364 U.S. properties in August, according to Irvine-based RealtyTrac, the highest monthly total in the research firm’s records.
“Eventually those homes are going to end up as discounted for-sale homes and will pull down prices,” Chen said. “So we are in for weakness.”
Prices in 12 of the 20 cities measured by the Case-Shiller index increased in July over June. The nonseasonally adjusted index showed home prices in California cities continued to appreciate, with Los Angeles up 0.3% from June, San Diego up 0.7% and San Francisco up 0.5%.
Some of the cities that saw the biggest gains were Detroit, up 1.6% from the previous month; New York, 1.3%; Washington, 1.1%; and Chicago, 1%.
Cities that declined included Las Vegas, which fell the most, 0.8%; Phoenix, down 0.6%; and Denver, 0.4%.
Separately, the Conference Board Consumer Confidence Index, dropped to 48.5 in September, down from 53.2 in August. The index is based on the Conference Board’s survey of 5,000 U.S. households.
The private research group started the survey in 1967. The index is benchmarked to consumer sentiment in 1985, because that year was neither a peak nor a trough, and any reading above 100 indicates strong growth.
Stuart Hoffman, chief economist for PNC Financial Services Group, called the number disappointing and an indication that consumers remain “fickle.”
The present situation index, a Conference Board gauge of consumer sentiment about current economic conditions, fell to 23.1 from 24.9. The board’s expectations index, which measures consumer sentiment about what future economic conditions will bring, also fell, to 65.4 from 72.