BOSTON — National home prices rose for the fourth straight
month in August, according to data released Tuesday, but many economists are
still warning the housing market hasn’t hit bottom yet as foreclosures rise and
with a homebuyer tax credit set to soon expire.
Prices of homes in 20 major U.S. cities rose more than 1
percent in August from the previous month, but are still down about 11 percent
from a year ago, according to the S&P/Case-Shiller home price index.
The closely watched data revealed that home values declined
in August in only three of the 20 cities tracked by the index, while some
hard-hit markets such as San Francisco posted decent gains.
However, some are predicting another leg down in prices as
the housing market moves into the traditionally slower months after the spring
and summer. The $8,000 tax credit for new homebuyers is scheduled to go away at
the end of November, although reports that Congress may extend or even expand
the stimulus have triggered violent market swings over the past week.
Meanwhile, a rising tide of foreclosures could exacerbate
the supply glut and reverse the recent price gains, housing bears say. Higher
unemployment and shattered consumer confidence during the economic recession
are more obstacles standing in the way of recovery.
“I don’t think we have hit bottom yet, but the building
blocks are there,” said Cameron Findlay, chief economist at online lending
exchange LendingTree, in a telephone interview Tuesday.
“Even a month ago, people were saying they didn’t know
where the bottom was,” he said. Tuesday’s housing report “showed
improvement in some markets, and cities that declined are doing so at a slower
pace.”
The big question is whether the four-month rise in home
prices through August is the beginning of a lasting recovery, or simply another
head-fake before more declines.
An analyst covering homebuilder stocks at Deutsche Bank
thinks the improvement is temporary, with more weakness to come.
“It is important to distinguish among the real and
technical factors that are likely affecting the home-price numbers,” said
Nishu Sood in a note Tuesday on the August S&P/Case-Shiller home price
index. “We do believe that there was some stabilization of entry level
home prices during housing’s strong spring and summer.”
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Yet he said demand was boosted by tax credits and investors
swooping in, while supply was constrained by foreclosure-prevention programs
and the government’s efforts to revive the mortgage market.
“This entry-level stabilization was real, but it is
principally government-sponsored and therefore tenuous,” Sood wrote.
“Our overall thesis remains unchanged — foreclosures
are the main reason home prices fell so fast and so far and we don’t think the
foreclosure wave is done yet; hence, we expect further pressure on home prices
in 2010,” the Deutsche Bank analyst added.
Indeed, foreclosures are “a very serious problem,”
said Findlay, the LendingTree economist.
He tracks mortgage delinquencies as a leading indicator of
foreclosures, and more borrowers are falling behind on their payments. The
trend is “concerning to us, and we’re trying to figure out why
delinquencies are rising” even though home prices have stabilized and
mortgage rates remain low, he said.
“It has to be associated with rising levels of
unemployment” as the national jobless rate hovers around 10 percent,
Findlay said.
Aside from worries over the job market, resets on
adjustable-rate mortgages, or ARMs, aren’t scheduled to peak until August 2010.
These loans resetting to higher rates could put further pressure on strapped
borrowers.
“We haven’t seen the worst of the foreclosure problem
yet, but the situation should improve within nine to 12 months,” the
economist said.
In the S&P/Case-Shiller release, Standard & Poor’s
Index Committee Chairman David Blitzer said overall, the rate of annual decline
in home prices continues to improve.
“One again, however, we do want to remind people of the
upcoming expiration of the federal first-time buyer’s tax credit in November
and anticipated higher unemployment rates through year-end,” Blitzer
warned. “Both may have a dampening effect on home prices.”
Another wild card for the housing market, as always, is
mortgage rates. The Federal Reserve has kept rates artificially low by buying
government debt and pumping liquidity into the mortgage market, but rates could
move higher once that punch bowl is taken away.
Via McClatchy-Tribune News Service.
