A closely watched index of home prices in the largest U.S. cities increased from March to April, the first such improvement in recent months, but experts attributed the bump to seasonal variations and noted that prices continued to fall compared with a year earlier.
Many analysts expect further declines in home prices this year, although the pace of those declines appears to be moderating, several noted Tuesday. The housing market has been in the doldrums since last summer — with sales and prices falling — after the expiration of a popular tax credit for buyers. Foreclosures and a sluggish jobs environment continue to weigh on the housing market.
Prices of previously owned single-family homes rose 0.7% in April from March but were down 4% from April 2010, according to the Standard & Poor’s/Case-Shiller index of 20 metropolitan areas released Tuesday. In March, home prices dipped below their recession-era low in April 2009, confirming a much-expected double-dip in home prices.
Six cities tracked by the gauge hit fresh bottoms. California cities, while continuing to decline on a year-over-year basis, saw month-over-month gains.
“The good news is that prices aren’t really falling that much more, but the bad news is that we are not seeing much of an increase in home prices yet,” said Celia Chen, a housing analyst for Moody’s Economy.com. “Until the market has worked through more of the foreclosure inventory, then home prices are not going to be able to increase.”
The Case-Shiller index, created by economists Karl E. Case and Robert J. Shiller, is widely considered the most reliable read on home prices. The 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.
Foreclosures remain a significant wild card for home prices because the more foreclosed homes on the market, the steeper the price declines. During the winter, foreclosures make up a bigger share of the pie. People buying houses to live in tend to do much of their shopping during the spring and summer. When those more normal buyers return to the market in the spring, it leads to artificial price bumps.
Indeed, when the Case-Shiller index for April is adjusted for seasonal variations, prices fell 0.1% month-over-month. Because of the large number of distressed properties, S&P has said the seasonally adjusted data are no longer a reliable gauge.
Home repossessions have been on the decline since last year, when the foreclosure process was thrown into turmoil by revelations that major banks used faulty documents and improper procedures to take back homes in default.
Last week, for instance, the foreclosure data firm RealtyTrac Inc. reported that foreclosure filings in the U.S. declined 2% in May from April and plummeted 33% from May 2010. Many foreclosures appear to be on hold until regulators and major banks conclude settlement discussions stemming from faulty foreclosure practices that will probably change the way homes are repossessed in the U.S.
When those negotiations are settled and banks revamp their processes and begin foreclosing again, some analysts are predicting further pressure on prices starting later this year.
“That is a very big wild card … how quickly these foreclosures are released on the housing market, and that is a difficult thing to predict,” Chen said. “We do expect foreclosures are going to rise over the next several quarters with the fastest pace occurring toward the end of this year.”
Christopher Thornberg, principal of Beacon Economics, doesn’t expect prices to fall further. The April 2009 bottom appears to be more or less where prices will probably stay until the excess supply of homes on the market is bought and the jobs engine creates new demand, he said.
“We have too much supply and not enough demand; the market found a level that fixes that, and until we start to eat up some of that supply and demand starts to grow, you are not going to see any big change here, simple as that,” Thornberg said. “It is going to take a couple years.”
Patrick Newport, U.S. economist for IHS Global Insight, said that home prices are undervalued.
“They are dropping further because there are a lot of bad loans still in the pipeline, and once they hit bottom, prices are going to start going up again because they are undershooting on the way down,” Newport said.
Perhaps the most prominent bear on housing in recent months has been Shiller, an economist at Yale, who has said publicly that he would not be surprised if prices fell 10% to 25%, and that the slide could last several years.
All three of the California metro areas in the index posted month-over-month gains in April, with prices in the Los Angeles area up 0.3%, San Diego up 0.4% and San Francisco gaining 1.7%.
Six of the 20 metro areas posted new lows — Charlotte, N.C.; Chicago; Detroit; Las Vegas; Miami; and Tampa, Fla.
“It’s all about patience,” Thornberg said. “Everybody seems to think that this market should be roaring back now, and it’s too early for that.”