Home Price Improvements Moderate, but Another Plunge not Likely
By: Carrie Bay
Residential property values continued to show further stabilization with prices rising for the fifth consecutive month in October, Standard & Poor’s (S&P) reported last week. Despite the seemingly positive uptrend, the latest S&P/Case-Shiller home price indices reveal that the pace of improvement slowed heading into the fourth quarter of last year, but S&P analysts say this doesn’t mean prices are moving toward a double dip.
S&P said that although prices across the nation are still below year-ago levels, all 20 cities studied and both composites showed an improvement in the annual rates of decline. The annual returns of the 10-city and 20-city composites fell 6.4 percent and 7.3 percent, respectively, in October compared to the same month last year. This marks approximately nine months of improvement in these statistics, beginning in early 2009.
Both the 10-city and 20-city composites of the study, which tracks the sale of the same houses over time, showed increases of 0.4 percent in the month-to-month readings, with only seven metro areas recording positive gains, compared to 11 the previous month.
“The turn-around in home prices seen in the spring and summer has faded,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. “All in all, this report should be described as flat. Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip.”
But Blitzer cautioned that before jumping to such a conclusion, it should be noted that the one time a subsequent dip was recorded following an apparent price recovery – at the beginning of the 1980s – Fed policy was dramatically different from the “stable and consistent Fed policy we have today,” Blitzer said.
In addition, he added, sales of existing homes – those included in the S&P/Case-Shiller home price indices – have been very strong in recent months, helping to work off the backlogged supply of houses for sale.
Although the national housing market is showing signs of a gradual recovery, Blitzer also noted that housing starts remain weak, there is still the threat of another wave of foreclosures, and government programs aimed at bolstering housing industry are set to expire in the first half of 2010.
S&P reports that as of October 2009, average home prices across the United States were at similar levels to those seen in the third quarter of 2003. From the peak in home prices in the second quarter of 2006 through the trough in April 2009, S&P says the 10-city composite dropped 33.5 percent and the 20-city composite fell a total of 32.6 percent. However, with the relative improvement of the past few months, the company says the peak-to-date figures for the composites through October 2009 are down 29.8 percent and 29.0 percent, respectively.
Returning to the shorter-term view, while the two composites were essentially flat, seven of the cities in the study showed positive growth during the final month of 2009’s third quarter and two of those – Phoenix and San Francisco – were greater than 1.0 percent.
San Francisco has reported seven consecutive months of positive returns, San Diego has reported six and Los Angeles and Phoenix are close behind with five.
Looking at the annual statistics, both Minneapolis and Portland are no longer reporting double-digit declines, and Denver and Dallas are nearing positive territory with annual declines of merely 0.1 percent and 0.6 percent, respectively.
Las Vegas remains the one market that has not seen a glimmer of hope since the bubble burst. There, prices have declined for 38 consecutive months, with a peak-to-trough nosedive of 55.4 percent.
