New data released in the S&P/Case-Shiller home-price index today (Tuesday) show prices of U.S. houses rose for the third straight month in July, suggesting the housing slump that led to the worst economic meltdown since the Great Depression is stabilizing.
The widely watched index of 20 metropolitan areas gained 1.2% from June to July, the largest jump in almost four years, the group said today in New York.
Although home values were down 13.3% from July 2008, the drop was less than economists' forecasts, leading some to declare the housing downturn is finally beginning to turn the corner.
Median projections of economists surveyed by Bloomberg News predicted the index would fall 14.2% in the year-over-year comparison ended in July. The gauge had fallen 15.4% percent in the 12 months ended in June.
The index reported smaller year-over-year price decreases from June to July in all 20 cities it tracks.
"The worst has passed," Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina told Bloomberg. "We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets."
A glut of foreclosures continues to put pressure on the market and recent reports suggest the number of distressed properties coming to market is still substantial.
A total of 358,471 U.S. properties received foreclosure filings in August, a decrease of less than 1% from record numbers recorded in July, but still an increase of nearly 18% from August 2008, RealtyTrac Inc., reported on Sept 10. It was the sixth straight month in which foreclosures totaled more than 300,000.
"The August report demonstrates that there is still an ample supply of properties filling the foreclosure pipeline even while the outflow of bank-owned REO properties onto the resale market is being more carefully regulated," James J. Saccacio, chief executive officer of RealtyTrac. "We also saw a record high number of properties either entering default or being scheduled for a public foreclosure auction for the first time."
Still, the high number of foreclosures has driven prices down, making houses affordable for greater numbers of Americans. Combined with record low interest rates and a government program granting an $8,000 tax credit to first-time buyers, home sales have increased for much of this year.
Even as they continue lose money, some homebuilders see light at the end of the tunnel.
Lennar Corp. (NYSE: LEN), the third-largest U.S. homebuilder, is among builders reporting increased demand, saying last week it expects to turn a profit in fiscal 2010 despite recording a wider loss in its fiscal third quarter.
"In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize," Stuart Miller, Lennar's chief executive officer, said on a Sept. 21 conference call. "The sense that now is the time to buy is starting to gain momentum."
If real estate prices continue to stabilize and stock markets keep soaring economists are hopeful consumers will increase spending, despite worries about mounting unemployment.
The Federal Reserve Board last week said that the economy and housing had improved, but vowed to keep the benchmark interest rate target at all-time lows "for an extended period."
The central bank also said it intends to extend purchases of $1.45 trillion in long-term government bonds into the first quarter of 2010 to keep lending rates low.
Still, average home prices in the 20-city index have plummeted 32.6% from the peak in the second quarter of 2006, S&P said. Prices are now at levels last seen in the autumn of 2003, Reuters reported.
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