Home prices rise again, but experts are unimpressed
Home prices in major U.S. cities increased in May for the second consecutive month, according to a closely watched index, although experts dismissed the uptick as seasonal while separate reports provided fresh evidence of a weak housing market.
The Standard & Poor’s/Case-Shiller index of home prices in 20 metropolitan areas rose 1% from April to May when left unadjusted for seasonal variations.
Prices often rise in spring because of changes in the types of homes selling: Foreclosures make up a higher proportion of sales during the winter as families take a break from home shopping and cash-rich investors dominate the market. Higher sales volumes in spring also push up prices.
But compared with May 2010, home prices slid 4.5%, according to the index released Tuesday.
“Year-over-year, prices continue to deteriorate, although there has been a seasonal uptick over recent months,” said Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate. “This reflects a market that continues to be in search of a bottom.”
Chris G. Christopher Jr., an economist with consulting firm IHS Global Insight, said in a research note that the seasonal kick in prices will probably fade by October.
“Things do not look very favorable on the housing front since the employment situation has taken a turn for the worse in May and June,” he wrote. “The unemployment rate now stands at 9.2%, and consumer confidence is at depressed levels. Going forward, the Case-Shiller indexes are likely to post increases during the home-buying season, and then turn down again.”
The housing market began a renewed decline last year after the expiration of federal tax credits and has been limping along ever since. In March, home prices fell below their recession-era low, hit in April 2009, confirming a much-expected double-dip. Values have ticked up slightly since then.
One factor keeping housing weak is the high number of homes in foreclosure or headed into the foreclosure process. Then there’s the stalled jobs market, weak consumer confidence in the economy’s direction and the significant number of people saddled with mortgage debt that exceeds the value of their homes.
A separate report released Tuesday by Santa Ana research firm CoreLogic indicated that the nation’s housing market is hampering the broader U.S. economic recovery. The report said that while several temporary factors have contributed to a slowing recovery, including high gas prices, U.S. floods and fading stimulus programs, “fundamentally, the recent slower economic growth illustrates that as the housing market goes, so does the economy.”
Housing influences the economy directly through residential construction, which typically gives a recovery a key boost. But with stiff competition from foreclosures, sales of new homes have been very weak for more than a year.
Sales of new homes in June dropped 1%, according to data released Tuesday by the Commerce Department. That put sales at an annualized pace of 312,000.
“We see no chance that a strong rebound in new-home sales will be a key driver of broader economic growth any time soon,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a research note.
Housing also influences the U.S. economy in less direct ways because people often buy new furniture and other items when they purchase a new place to live, or even when they do home improvement projects such as adding new rooms.
In California, a recent poll for The Times and USC’s Dornsife College of Letters, Arts and Sciences shows that Californians are coping with hard times by cutting household expenses, skipping restaurant meals and forgoing home improvements.
Tiffany Suarez-Martinez, 34, and her husband, Eduardo, 32, rent a house in the Inland Empire town of Chino. The parents of three young children said that they are concerned about the future and scraping to get by because of high gasoline costs and lost work hours. Their neighborhood has been ravaged by foreclosures, bringing down property values and leaving empty homes with dead front lawns, Tiffany said.
“Everybody I know has almost lost their home or is in the process of losing their home,” she said. “I am renting, thank God, because I didn’t think we could afford a house, so we didn’t buy.”
Homeownership remains a dream for the couple, but “we are still not ready,” she said, “with a family of five and only one person working.”
The state of the housing market also influences consumer views on the economy. Consumer confidence improved slightly in July, with expectations for the economy rising slightly, although pessimism remains high, according to the Conference Board’s consumer confidence index, released Tuesday. The index now stands at 59.5, up from 57.6 in June.
The Case-Shiller index, created by economists Karl E. Case and Robert J. Shiller, is widely considered the most reliable read on home values. The housing index compares the latest sales of detached houses with previous sales and accounts for factors such as remodeling that might affect a house’s sale price over time.
Sixteen of the 20 metro areas tracked by the Case-Shiller index posted increases on a month-over-month basis, but only Washington was up from May 2010, rising 1.3%. From April to May, Los Angeles was up 0.5%, San Diego 0.2% and San Francisco 1.8%.
The index also provides seasonally adjusted data. S&P has warned that the adjusted data are unreliable because the high number of distressed properties has distorted the market.
