Home Prices Up, But Show Signs of Slowing

By:: Peter King | August 31, 2010

U.S. home prices posted significant gains in June, but other recent signs are pointing to what could be a bumpy road ahead for the housing market.

Nationally, home prices were up 4.4 percent in the second quarter of 2010, after falling 2.8 percent in the first, according to the newest Standard&Poor’s/ Case Shiller Home Price Indices, released today. On a monthly basis, June home prices were up 1.0 percent over May and showed an annual gain of 4.2 percent, according to the Indices’ 20-city composite.

The report notes, however, that other recent housing signals are more ominious. Home sales fell sharply in July despite the lowest mortgage interest rates in over half a century, while a backlog of foreclosures is poised to bring another flood of distressed homes on the market.

Rate of annual gains slows

The new report contained signs of a softening market, despite overall positive results for the month and quarter. June’s figures trailed May’s annual gain of 4.6 percent, the first time in 16 months that the annual rate of change has declined, signaling a possible slowdown.

“The monthly Composites cover June and the national index covers the second quarter, when the

government’s program for first-time homebuyers was winding down,” said David M. Blitzer, chair of the Standard & Poor’s Index Committee. “While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead.”

“The worry starts when you remember that the Homebuyers’ Tax Credit has expired, foreclosures are still at high levels, and July data on home sales and starts were very, very weak,” Bliztzer continued. “The

inventory of unsold homes and months’ supply data were particularly troubling. If this relative weakness

in demand continues, it will likely filter through to home prices in coming months.”

California cities showing strong gains

Despite these concerns, Blitzer said the market is still in better shape than it was one year ago. He noted that San Francisco, San Diego and Los Angeles have gone from being among the hardest-hit cities in terms of declining prices to being three of the four top gainers over the past year, recording price increases of 9.2 percent of 14.3 percent. (Minneapolis was the fourth market, with a 10.2 percent gain).

Overall, national housing prices have recovered 6.3 percent of their value from the bottom of the market in April 2009, based on the 20-city composite, but still remain 28.4 percent below their peak of June/July 2006.

The S&P/Case-Shiller Home Price Indices are based on repeat sales of individual properties in major U.S. metropolitan markets that are meant to provide a composite view of single-family home prices in the United States.

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