April US Home Price Gains May Be Illusory

June 29, 2010

Gains in U.S. home prices may have reflected
government support, and with that aid program now expired, home price gains may stall out.

Signs of a sustained recovery in the
residential real estate market remain elusive, with home prices still hovering near their April 2009 lows, the latest S&P/Case-Shiller Home Price Indices data showed.

While all metropolitan areas surveyed showed growth rates in April, with the 10-City and the 20-City Composites up on the year 4.6 percent and 3.8 percent, respectively, that rise may have reflected last-chance buying interest in the final month of the
government’s Federal Home Buyer Tax Credit program, S&P said.

“The month-over-month figures were driven by the end of the federal first-time buyer tax credit program on April 30,” S&P’s Index Committee Chairman David Blitzer said in press release.“Other housing data confirm the large impact, and likely near-future pullback, of the federal program. Consistent and sustained boosts to economic growth from housing may have to wait to next year.”

More broadly, Blitzer added, the month-over-month figures also showed that nine out of the 20 cities have made new lows at some point so far in 2010, confirming that average prices nationwide are still struggling to sustain an uptrend since large U.S. financial firms such as Bear Sterns and Lehman Brothers collapsed in 2008, triggering a crash of global financial markets.

'Sobering' Data

“If you look at the year-to-year data closely, it’s sobering,” Blitzer told IndexUniverse in a telephone interview. “We are not seeing the incredible rebound a lot of us were looking for, and the
economy depends on a housing boom to get firmly into recovery.”

Housing was and remains at the center of the current economic crisis, he added, and unlike in previous economic downturns such as those seen in the early 1980s and early 1990s, the housing market isn’t recovering as before.

“This time around it’s a bigger mess,” Blitzer said. “The housing boom gave everyone a chance to load up on debt, and they did,” he added, stressing that the indebtedness extends from individuals to government, making this recession unique.

“Home price levels remain close to the April 2009 lows,” Blitzer said. “The April 2010 data for all 20 [metropolitan areas] and the two Composites do show some improvement with higher annual increases than in March’s report. But many of the gains are modest and somewhat concentrated in


S&P/Case-Shiller Home Price Indices


May numbers are already hinting at sharp declines in existing and new home sales and housing starts, Blitzer said. Also, inventory data and foreclosures haven’t improved, signaling more challenges ahead for the real estate market, according to Blitzer.



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