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Key Home Price Index Rises for Fifth Month


By Bob Willis

(Bloomberg) — Home prices in 20 U.S. cities rose in October for a fifth consecutive month, putting the housing market and economy farther along the path to recovery.

The S&P/Case-Shiller home-price index increased 0.4 percent from the prior month on a seasonally adjusted basis, after a 0.2 percent rise in September, the group said today in New York. The gauge was down 7.3 percent from October 2008, the smallest year- over-year decline since October 2007. The median forecast of economists surveyed by Bloomberg News anticipated a 7.2 percent drop.

Tax credits for first-time buyers and mortgage rates that are less than a percentage point from record lows may prevent the market from retreating after sales jumped 35 percent over the first 11 months of 2009. Rising home and stock prices over the past two quarters enabled households to recover 28 percent of the record $17.5 trillion of wealth lost since mid 2007.

"We're starting to get a little bit of a turnaround, things are stabilizing," said John Silvia, chief economist at Wells Fargo Securities (WFC) in Charlotte, North Carolina. "People aren't in a panic in terms of selling their homes."

U.S. stocks rose, with the Standard & Poor's 500 Index extending its biggest annual rally since 2003. The S&P 500 added 0.2 percent to 1,129.50 as of 10:20 a.m. in New York, while the Dow Jones Industrial Average rose 0.3 percent to 10,575.34.

Median Forecast The median forecast was based on projections from 31 economists surveyed. Estimates ranged for declines of 4.6 percent to 8 percent.

The seasonally adjusted 20-city index has been rising on a month-to-month basis since June, the first gain since it started dropping in June 2006.

Compared with the prior month, 11 of the 20 areas covered showed an increase on a seasonally adjusted basis while eight had a decline. The biggest month-to-month gain was in San Francisco, which increased 1.7 percent.

All of the 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year decline than in September.

A surge in home purchases by first-time U.S. buyers is doing little to help real estate agents and brokers who close the deals.

Commissions in 2009 fell to the lowest level in seven years, driven down by sales of low-priced homes to first-time buyers using a federal tax credit. Commissions through November dropped 6.2 percent from a year earlier to $40.6 billion, according to Bloomberg calculations based on the average commission rates from Real Trends Inc. and on home price and sales data from the National Association of Realtors.

Weaken Again To help ensure housing doesn't weaken again, President Barack Obama and Congress last month extended the tax credit until April 30 from Nov. 30, and expanded it to include some current owners.

Existing home sales in November rose to a 6.5 million annual rate, the highest level since February 2007, the National Association of Realtors said last week. They were still 10 percent lower than September 2005 peak levels.

"The tax credit had the intended impact of drawing buyers in and lowering inventory," Lawrence Yun, the real-estate agents group's chief economist, said in a news conference. "An estimated 2 million buyers have taken advantage of the credit."

Mounting foreclosures and an unemployment rate that economists surveyed by Bloomberg News this month forecast will exceed 10 percent in the first half of 2010 remain risks for the housing market and the economy.

Record Foreclosures Foreclosure filings in 2009 will reach a record for the second consecutive year with 3.9 million notices sent to homeowners in default, RealtyTrac Inc., the Irvine, California- based company said Dec. 10. This year's filings will surpass 2008's total of 3.2 million.

"There are plenty of headwinds out there," Karl Case, an economics professor at Wellesley College and a creator of the index, said on Bloomberg Radio. Pending resets of adjustable-rate mortgages to higher rates are "clearly a huge problem and the pipeline is not clearing."

Still, homebuilders are seeing some improvement. Hovnanian Enterprises Inc.(HOV), New Jersey's largest homebuilder, said Dec. 16 its fourth-quarter loss narrowed as more buyers signed purchase contracts. "On the whole, we are seeing more price stability across our markets," Chief Financial Officer Larry Sorsby said in a Dec. 17 conference call.

Case and Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, created the home-price index based on research from the 1980s. Case this month announced his retirement from teaching.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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