Home Prices Up, But Weakness Remains

By:
Kara Johnson | April 27, 2010

Home prices have posted their first annual increases in three years, according to two leading surveys released this week, but month-to-month figures are showing signs of weakness in the housing market. 

Home prices showed an annual gain of 0.6 percent in the Standard & Poor’s/Case-Shiller home price index of 20 major metropolitan areas, released today, while yesterday’s First American Core Logic home price index reported an annual increase of 0.3 percent. Both surveys compared February 2010 prices with prices from February 2009.
 
It was the first annual gain in housing prices in the Standard & Poor’s survey since December 2006 and a similar period for First American. However, monthly figures show prices declining since last fall. Prices fell by 0.9 percent from January to February in the Case-Shiller survey, and by a full 2.0 percent in the First American report.
 
The annual rates of increase or decline are considered a more stable indicator of the state of the housing market, while monthly figures are more sensitive to current trends. Annual price differences can continue to show gains despite recent monthly declines if prices were falling more rapidly one year ago than in recent months.
 

Major impact seen from tax credit

 
It is too early to say that the housing market is recovering” said David Blitzer, chairman of the Standard & Poor’s Index Committee. He noted that while statistics for home sales, housing construction starts and the unsold inventory of homes have all shown tremendous improvement recently, this is likely due in large part to the home buyer tax credit, which expires in April.
 
Blitzer also noted that foreclosure activity has reached its highest level in five years, and that home prices will likely see some weakening as those homes begin to come onto the market.
 
 
The First American report projected that home prices will continue to show modest annual increases through early summer before declining, and forecast a 3.4 percent annual decline from February 2010 to February 2011. That forecast assumes the federal tax credit will not be extended, as seems certain: the company predicted that home prices would actually post a 4.1 percent annual increase by 2011 if the tax credit were extended.
 

Distressed sales heavily skew prices

 
The First American study also concluded that distressed home sales, such as foreclosures and short sales, heavily skew the data. Excluding distressed sales, the company predicted that home prices for traditional real estate transactions would actually increase by 4.9 percent on an annual basis.
 
“February’s year-over-year increase in the HPI (Home Price Index) breaks through an important psychological barrier,” said Mark Fleming, chief economist for First American CoreLogic. “While the increase in the HPI is encouraging, expectations for increased inventory as federal housing stimulus expires moderates our forecast for 2010. Prices will continue to bounce along the bottom while inventory levels remain elevated.”

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