Home prices jump in 20 major U.S. cities
U.S. home prices are rising sharply, new data indicate, helping to cement a growing consensus that the real estate slump is over.
But with jobs and the economy growing at a decidedly sluggish pace, experts caution that the housing market is not likely to sustain a sharp upward trajectory and give a major boost to the overall economy.
The closely watched Standard & Poor’s/Case-Shiller index for the nation’s 20 largest cities posted its first year-over-year increase, at 0.5%, since 2010, June data released Tuesday showed.
The annual improvement in the 20-city index was particularly significant given that the last time the measure posted such a gain, sales were being juiced by popular government tax credits. When that aid expired, prices collapsed and produced a troublesome “double-dip.”
Economists warn, however, that home prices could flatten or even decline during certain months, producing a jagged recovery. A rash of other economic indicators have been disappointing lately, including a key gauge of consumer sentiment in August released Tuesday, which fell to its lowest level since late last year.
“The crash is clearly over, housing is now improving but the numbers overstate the case,” said Mark Zandi, chief economist for Moody’s Analytics.
“The improvement in housing is not consistent with the weakening consumer confidence numbers — consumers are still very nervous and my sense is that they are still worried, and rightly so, about the job market.”
Although news on the housing front has been positive for the last several months, consumer sentiment has turned dismal as hiring has remained slow, businesses have grown cautious and fears of another recession have increased.
“All is not well on the consumer front....,” Chris G. Christopher Jr., an economist with IHS Global Insight, wrote in a note to clients. “Consumer spending trends have had noticeable fits and starts that are not indicative of a robust, healthy, and confident American consumer.”
Economists on Tuesday said the nation’s housing market is on firmer footing than it was two years ago, driven by rock-bottom interest rates, a decline in foreclosed homes and a sense by consumers and investors that prices aren’t getting much cheaper.
“We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market,” said David M. Blitzer, chairman of the index committee at S&P; Dow Jones Indices.
The Standard & Poor’s/Case-Shiller 20-city index in June logged its fourth consecutive monthly gain, up 2.3%. A separate Standard & Poor’s/Case-Shiller index of national home prices was up 6.9% quarter-over-quarter and 1.2% from the second quarter of last year.
Home prices are rising because more buyers are bidding on fewer properties. Listed inventory has sunk to levels not seen since the boom years — dropping even in hard-hit Sun Belt cities such as Los Angeles, San Diego, Phoenix, Las Vegas and Miami. The drop in foreclosed homes sold in each of these cities has been particularly acute.
In the Los Angeles area, prices rose 1.7% in June from the previous month, but were still down about 0.6% compared with a year earlier. L.A. was among only six cities that saw a drop from the previous year, joining San Diego, Las Vegas, Atlanta, Chicago and New York.
The Case-Shiller index is widely considered the most reliable read on home values. 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.
If home values continue to rise, that could aid the economy by reducing the number of “underwater” homeowners — those who owe more on their homes than what the properties are worth — but will probably do little to boost consumer spending, the true engine of the American economy. Rising home prices can help American households feel wealthier, unlocking spending, but that so-called wealth effect probably will remain constrained in coming years if prices don’t rise faster than inflation.
In addition, fewer borrowers are falling behind on their mortgages, reducing the likelihood of a large second wave of foreclosed homes.
“It’s hard to see where these properties are hiding,” Shaun Donovan, secretary of Housing and Urban Development, said during a recent trip to Los Angeles. “We are now seeing a full recovery, or a fuller recovery.”
As positive as economists were on the housing front, they were just as pessimistic about the Conference Board’s report that consumer confidence plunged, with more consumers feeling downbeat about their economic futures. The consumer confidence index fell to 60.6 this month, down from 65.4 in July, driven not by what people feel about the current situation but their concerns about where the economy is headed. The reading was the lowest since November.
The index had ticked up in July after four monthly declines. But with talk of the fiscal cliff looming at the end of the year — a potentially recession-inducing mix of tax increases and large government spending cuts — the index resumed its downward trend in August.
There was little change in how consumers viewed their current situation. For example, 34.4% of people surveyed said business conditions right now were bad, the same percentage as in July. And 40.7% of those surveyed in August described jobs as “hard to get,” down slightly from 41% a month earlier.
But consumers’ long-term view headed south. The percentage of respondents who expected business conditions to improve over the next six months dropped to 16.5% from 19% in July. And 23.4% of those surveyed in August said they expected the economy to produce fewer jobs in the same upcoming period, up from 20.6%.
Despite those concerns, consumers indicated they were more optimistic about their own earning power. The percentage of respondents who expected to see their incomes rise during the next six months improved to 15.7% in August from 14.2% in July.