Home Prices Up, But Consumers Pessimistic

U.S. home prices rose for the third straight month in July, according to a leading index, but the good news comes against a background of more recent data showing continued trouble for the economy.

Home prices rose 1.3 percent in July, according to the monthly Standard and Poors/Case Shiller survey of home prices in 20 major U.S. markets, released today. Prices were up in 18 of 20 metropolitan areas surveyed, suggesting a broad-based national recovery in housing is underway.

However, more recent data from the National Association of Realtors, released last week, shows that sales of existing homes fell in August. And the Conference Board reported today that consumer confidence fell in September, contrary to the expectations of economists, who had predicted it would rise.

The mixed results show that, despite widespread optimism among economists that the U.S. economy is turning around, or at least, is bottoming out, it remains a bumpy ride.

The S&P/Case Shiller Index has been trending upward the past six months, as home prices first slowed their decline, then began to rise. Although overall U.S. home prices were still down 13.3 percent for the year, the annual rate of decline, considered a trend marker, eased in all 20 markets surveyed.

David Blizter, chair of the Standard and Poor's Index Committee, said the increases over the past three months are an indication that real estate prices are stabilizing. He cautioned, however, that it remains to be seen how the housing market will weather rising unemployment and a possible surge in foreclosures, along with the scheduled expiration of the first-time homebuyer tax credit at the end of November.

Consumer confidence declines

The decline in consumer confidence in September was linked to concerns over employment and personal incomes, according to the Conference Board survey. The Consumer Confidence Index fell to 53.1, down from 54.3 in August. Economists had predicted an increase to 57.0, according to a Reuters poll.

Only 21.3 percent of the 5,000 households surveyed said they expect the economy will improve over the next six months. The survey reported that 47.0 percent described jobs as hard to get, up from 44.3 percent in August; the percentage describing business conditions as bad rose to 46.3 percent, up from 44.6 percent in August.

The Conference Board findings run contrary to two other recent surveys, as both the University of Michigan and Reuters recently reported improving consumer attitudes in September. The NAR's August figures on existing home sales also contrast with Commerce Department figures for new home sales that month, which reportedly increased.

The big question remains whether positive trends in the economy can be sustained in the face of rising unemployment. Although the number of new layoffs each week continues to decline, total unemployment is still rising, and the massive layoffs of last spring and early summer are soon expected to translate into a new wave of mortgage defaults and foreclosures. It remains to be seen whether other forces in the economy will have enough momentum to overcome those impacts.