Posted on Thursday, 30th September 2010 by Charlotte W
Annual gains in home prices have slowed in recent months, raising concerns over possible weakening of the housing market.
Average U.S. home prices in July were up 3.2 percent over those from 12 months earlier, according to the newest Standard & Poor’s/Case Shiller Home Price Index of 20 major U.S. housing markets. Although a modest gain, it was less than the 4.2 percent annual increase reported in June – which itself was down from 4.6 percent in May. Those declines were the first after 16 consecutive months of improving annual rates of return in the S&P/Case Shiller survey. Although prices continue to show modest increases month-to-month, the change in annual rates of return is considered a more reliable indicator of long-term trends. Overall, average prices showed a small increase month to month, with July figures up 0.6 percent over June. Even so, that was down from the 1.0 percent increase from May to June. In addition, 10 of the metropolitan areas surveyed showed declining annual growth rates in July, compared to only five in June.
California cities show strongest gains
The survey’s strongest gainers continued to be in California, where prices have staged a modest comeback after experiencing some of the nation’s worst declines during the housing market crash.San Francisco, San Diego and Los Angeles topped the 20-city list, with annual gains ranging from 7.5 to 11.2 percent, but even these were lower than in previous months.
David Blitzer, chair of the S&P Index Committee, said that while it’s possible the housing market may see some residual benefits from the homebuyer tax credit as closings continue through September, consumers should not expect home prices to return to their former levels in the foreseeable future. “The next few months may give us an idea of the true strength of the housing market, as the temporary economic stimuli will have ended,” Blitzer said. “Housing starts, sales and inventory data reported for August do not show signs of a robust market, and foreclosures continue.”
A bellweather for housing prices
A year and a half ago, the monthly Index provided one of the first signs that the plunging housing market was bottoming out when it showed that annual price declines, which had reached nearly 20 percent over a single 12-month period, were beginning to slow. Similarly, the Index provided an early signal of the housing market crash when annual gains topped out above 20 percent in 2004, then began to drop rapidly. Even though ensuing months continued to show positive gains compared to 12 months before, the rapid drop in annual gains to 16, 12, 8 percent and below showed the market was weakening well before prices themselves actually entered negative territory. Given that monthly home prices continue to rise, although slowly, the current slowdown may simply indicate that the rebound following the bottom of the market has topped out, rather than signaling new declines. Some softening of prices also was to be expected following the end of the homebuyer tax credit, which strongly boosted sales. August and September figures will likely provide a more reliable indicator of which direction the market is headed.
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Tags: Housing Market, Market
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