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The S&P/Case-Shiller index of home prices increased more than forecast in May, but the combination of a now-expired government tax credit, skyrocketing foreclosures and deteriorating consumer confidence is expected to keep a lid on the housing market in the second half of 2010.
Home prices in 20 major U.S. cities climbed 4.6% from May 2009, the biggest year-over-year gain since August 2006. However, analysts say the increase was artificially buttressed by seasonal factors and the residual impact of the homebuyers' tax credit.
"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year" doesn't show that the housing market "is in any form of sustained recovery," David M. Blitzer, chairman of S&P's index committee told The Wall Street Journal. "Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level."
Separately, the U.S. consumer confidence index fell to 50.4 in July - the lowest level since February - from an upwardly revised 54.3 in June, the Conference Board said yesterday (Tuesday). The downbeat mood raises concerns about job growth and second-half consumer spending.
With the government's homebuyers tax incentive now history, the state of the labor market will determine the health of the housing market. Private U.S. companies added a paltry 83,000 workers in June, and initial jobless claims are averaging around 450,000 in July - a sign that companies are still not hiring.
"Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves," Lynn Franco, director of Conference Board's consumer research center, said in a statement.
Slack demand since the April 30 contract-signing deadline to be eligible for an incentive worth up to $8,000 increases the risk home prices will be flat or down in coming months even though the lowest mortgage rates on record are making houses more affordable.
"We just are going to muddle through for a while," Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. (NYSE: JPM) who forecast the index would rise 4.5%, the closest of those surveyed, told Bloomberg News. "I'm not looking for big movement from here either up or down."
A quick look at the latest data shows there are numerous other challenges to the housing market.
First and foremost is the rising tide of foreclosures. Lenders filed for more than 1.65 million foreclosures in the first half, an increase of 8% from the same period in 2009, RealtyTrac Inc., a data company in Irvine, California, said July 15.
A record 269,962 U.S. homes were seized from delinquent owners in the second quarter, a 38% jump from 2009. Lenders are now on pace to claim more than 1 million properties by the end of 2010, raising speculation about when banks will begin to put more of those homes on the market.
The mounting foreclosures are helping U.S. apartment landlords fill complexes around the nation as people losing their homes are forced to move.
The number of occupied apartments increased by 215,000 in the 64 largest U.S. markets in the first half of the year, according to MFP Research, almost twice the units added in all of 2009 and the most since the firm began tracking the data in 1992. The vacancy rate declined to 6.6% last month from 8.2% in December.
"As homeownership continues to decline, people need to live somewhere," Henry Cisneros, who was President Bill Clinton's housing secretary from 1993 to 1997 and is executive chairman of CityView, a real estate investment firm in Los Angeles told Bloomberg. "The rental market will be robust for the next few years."
Yet another potential source of additional "shadow" inventory is the group of homeowners who have been waiting on the sidelines for home prices to improve before testing the waters. Many real-estate industry analysts are reporting an uptick in listings from new sellers entering the market.
"The number of people coming back on the market as sellers is moving up," Pat Lashinsky, chief executive of real-estate brokerage ZipRealty, Inc. told The Journal.
At the same time, "buyers are looking, but they're not buying," he says.
The inventory of unsold homes increased in June, according to the National Association of Realtors, to 8.9 months of supply at the current sales rate, up from 8.3 in May.
About 7% of homeowners surveyed by Zillow.com said they were "very likely" to put their home on the market over the next year if they saw signs of improvement in the housing market. That would translate to more than 5 million homes.
"What's going to happen to the household that wanted to move three years ago and didn't want to sell into a declining market?" Michael Fratantoni, an economist at the Mortgage Bankers Association told The Journal. "There's a lot of those folks out there, and once we start getting a couple months of good news, there's going to be a flood of listings from these people."
News & Related Story Links:
- Wall Street Journal:
Home Prices Rose in May
Job worries darken July consumer confidence
Home Prices in 20 U.S. Cities Rose More Than Forecast
- Wall Street Journal:
The Threat of 'Sidelined' Home Sellers
Apartment Rentals Surge in U.S. on Foreclosures, Jobs
- Money Morning:
Taxpayers' $3.7 Trillion Bailout Hasn't Saved the U.S. Housing Market