US Economy: Home Prices Increase by Most Since 2005
Sept. 29 (Bloomberg) -- Home values in 20 U.S. citiesclimbed in July by the most in almost four years, helping stemthe record plunge in household wealth that’s depressedspending.
The S&P/Case-Shiller home-price index rose 1.2 percent inJuly from the prior month, the biggest gain since October 2005,the group said today in New York. Another report showedconsumer confidence unexpectedly fell in September, whileholding above the record low reached earlier this year.
Home values are rebounding as low borrowing costs andgovernment tax credits lift home sales. Combined with risingstock prices, the gains will begin to restore the $13 trillionplunge in net worth caused by the worst financial crisis sincethe Great Depression, a process that economists such as BrianBethune say will take years to complete.
Home prices are “a major, major turning point for theeconomy,” said Bethune, chief financial economist at IHSGlobal Insight in Lexington, Massachusetts. “We are eatingaway at the problem of household balance sheets.”
The New York-based Conference Board’s consumer confidenceindex fell to 53.1 in September from 54.5 the prior month, theprivate research group said today, amid growing concern overthe lack of jobs. The gauge sank to 25.3 in February, thelowest level in data going back to 1967.
The Standard & Poor’s 500 Index dropped after theconfidence report, erasing earlier gains. The index was up 0.1percent to 1,064.01 at 1:18 p.m. in New York. The yield on thebenchmark 10-year Treasury note was little changed at 3.29percent compared to 3.28 percent late yesterday.
Decline Slows
From a year earlier, the S&P/Case Shiller index was down13.3 percent, less than economists anticipated and the smallestdecrease in 17 months.
The measure was forecast to fall 14.2 percent, accordingto the median projection of 36 economists surveyed by BloombergNews. Estimates ranged from declines of 12.5 percent to 15percent. It was down 15.4 percent in the 12 months ended inJune.
Compared with the prior month, 17 of the 20 cities coveredshowed an increase, led by a 3.1 percent jump in Minneapolisand a 2.9 percent increase in San Francisco. Las Vegas sufferedthe biggest one-month decrease at 1.9 percent.
Sales Rising
Combined sales of new and existing homes have risen forfour out of the last five months, signaling the worst of thehousing crisis is over.
The Obama administration’s $8,000 tax credit for first-time buyers, which is due to expire at the end of November,combined with lower prices as foreclosures soared, have helpedlift sales this year. The National Association of Realtors andthe National Association of Home Builders have lobbied toextend the credit on concern demand will wane after it lapses.
Karl Case, co-creator of the S&P/Case-Shiller index, saidthe U.S. residential property market is improving enough to endthe tax credit for first-time buyers.
“We’ve got to phase back incentives and this may be agood time to do that,” Case said in an interview on BloombergRadio. “I believe in some cities you’ll see the beginning ofrecovery.”
Pending Profit
Lennar Corp., the third-largest U.S. homebuilder, is amongcompanies that see demand improving, even as losses mount. TheMiami-based company said last week it expects to turn a profitin fiscal 2010.
“In the third quarter we started to see some real signsthat the housing market is in fact starting to stabilize,”Stuart Miller, Lennar’s chief executive officer, said on aSept. 21 conference call. “The sense that now is the time tobuy is starting to gain momentum.”
The Conference Board’s confidence gauge was projected toincrease to 57, according to the median estimate of economistssurveyed by Bloomberg News.
The decline was caused by growing pessimism over jobs. Theshare of consumers who said jobs are plentiful fell to 3.4percent this month from 4.3 percent. The proportion of peoplewho said jobs are hard to get increased to 47 percent from 44.3percent.
“It’s a little hard for households to look at theirpaychecks, or the lack thereof, and feel more confident,”Ellen Zentner, a senior economist at Bank of Tokyo-MitsubishiUFJ Ltd. in New York, said in a Bloomberg Television interview.Even so, “we should continue to see consumer confidence turnaround,” because the recession is over and hiring eventuallywill rebound, she said.
Fewer Job Losses
The pace of job losses is easing as the economy showssigns of accelerating. Payrolls fell by 216,000 in August, thesmallest decline in a year, according to the Labor Department.Employers probably cut another 180,000 workers this month,economists project a Labor Department report later this weekwill show.
Economists say the Conference Board’s index tends to bemore influenced by attitudes about the labor market.
Confidence may improve in future months as balance sheetsrebound. Net worth for households and non-profit groups climbedby $2 trillion in the second quarter, marking the first gainsince the third quarter of 2007, according to figures from theFederal Reserve.
Fed policy makers last week said they would keep thebenchmark lending rate near zero “for an extended period,”and noted that sluggish income growth and tight credit arecurbing household spending and slowing the pace of the economicrecovery.
To contact the reporter on this story:Bob Willis in Washington at bwillis@bloomberg.net;Shobhana Chandra in Washington at schandra1@bloomberg.net
Last Updated: September 29, 2009 13:20 EDTSource: Bloomberg
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