Outlook for housing market is muddied by minuscule rise in prices

Home prices inched up in November, a closely watched national index released Tuesday showed, but the monthly increase was so small that it shed little light on whether the U.S. housing market was headed for a full recovery or another dip.

The Standard & Poor’s/Case-Shiller index of home prices in 20 metropolitan areas increased 0.2% from October on a seasonally adjusted basis, with 14 cities posting gains. Compared with a year earlier, the index was down 5.3% in November, but the year-to-year rate of decline moderated in all 20 cities.

November’s positive read was the sixth consecutive month of gains. Improvement in the last three months, however, has been relatively anemic, casting doubt on the strength of the rebound. On Monday, the National Assn. of Realtors said sales of existing U.S. homes in December fell 16.7% from November.

“We are going to have to wait a few more months to really get a good sense of where home prices are going,” said Celia Chen, senior director at Moody’s

Prices and sales were bolstered in November as many first-time buyers raced to close on their purchases to take advantage of a federal tax credit of up to $8,000 for first-time buyers that was set to expire at the end of the month. (Congress in early November extended the deadline to April 30 and expanded the credit to include up to $6,500 for some buyers who already own homes.)

Low interest rates and increased access to mortgages backed by the Federal Housing Administration have also been bolstering the market. Many economists expect interest rates to rise again this year, and the FHA is tightening its lending standards. The sluggish home price index report Tuesday raised questions anew of whether the housing market can function robustly without that government help.

“The Case-Shiller indices are three-month moving averages, so November’s readings reflect transactions that took place in September, October and November, when demand was heating up in anticipation of the expiration of the tax credit for first-time home buyers,” Patrick Newport, U.S. economist at IHS Global Insight, wrote in a note to clients. “Historically low interest rates also fueled demand, and stronger demand helped stabilize home prices during the second half of 2009. But will this trend continue? Probably not.”

On a seasonally adjusted basis, Phoenix had the biggest gain, 1.6%, and San Francisco was a close second, up 1.5%. The Los Angeles area, which includes Orange County, gained 1%, as did San Diego.

The index compares sales of detached houses with previous sales and accounts for factors such as remodeling.