(Updates with economist comment in fourth paragraph and consumer confidence in fifth.)
June 28 (Bloomberg) -- Home prices decreased in the year ended April by the most in 17 months, showing the housing market remains an obstacle for the U.S. recovery.
The S&P/Case-Shiller index of property values in 20 cities fell 4 percent from April 2010, the biggest drop since November 2009, the group said today in New York. From March to April, prices fell 0.1 percent on a seasonally adjusted basis, the smallest decline since July 2010.
A backlog of foreclosures and falling sales raise the risk that prices will decline further, discouraging builders from taking on new projects. The drop in property values and a jobless rate hovering around 9 percent are holding back consumer sentiment and spending, which accounts for 70 percent of the economy.
“Home prices are still easing but the declines are not dramatic any more,” said Harm Bandholz, chief U.S. economist at Unicredit Group in New York, who correctly predicted the year- over-year drop. While month to month changes show “prices have basically bottomed and are moving sideways,” he said “we’re a long way away from significant increases in house prices.”
Consumer confidence unexpectedly fell in June to a seven- month low, indicating that slowing employment gains are weighing on Americans’ outlooks, another report today showed. The Conference Board’s index decreased to 58.5 from a revised 61.7 reading in May that was higher than previously estimated. The percent of respondents expecting an increase in job availability fell to the lowest in 11 months.
Stocks held earlier gains after the report amid optimism that a deal can be reached to help Greece avoid defaulting on its debt. The Standard & Poor’s 500 Index climbed 0.6 percent to 1,288.35 at 9:45 a.m. in New York. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 2.95 percent from 2.93 percent late yesterday.
The decrease matched the median forecast of 30 economists surveyed by Bloomberg News. Estimates ranged from declines of 4.9 percent to 3.5 percent. The year-over-year drop in March was revised to 3.8 percent from a previously reported 3.6 percent decline.
Before adjusting for seasonal variations, prices climbed 0.7 percent from March, today’s report showed.
The year-over-year gauge provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Shiller told a conference in New York this month that a further decline in property values of 10 percent to 25 percent in the next five years “wouldn’t surprise me at all.”
The Case-Shiller gauge is based on a three-month average, which means the April data was influenced by transactions in March and February.
“This month is better than last,” David Blitzer, chairman of the index committee at S&P, said in a statement. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.”
Nineteen of the 20 cities in the index showed a year-over- year decline, led by an 11 percent drop in Minneapolis.
Washington showed the only increase, up 4 percent from April 2010.
Six cities registered new post 2006-2007 lows, an improvement from the 12 areas in March. Prices in three regions, including Cleveland, Detroit and Las Vegas, dropped to the lowest level in 11 years.
Compared with the prior month, 13 of the 20 areas covered showed a increase on an unadjusted basis, led by Washington.
Reports earlier this month showed the housing market is yet to gain momentum. Sales of previously owned homes, which comprise about 94 percent of the housing market, were down 3.8 percent last month from April, the National Association of Realtors said.
Purchases of new houses dropped 2.1 percent in May, the first decline in three months, according to Commerce Department data. Competition from foreclosed homes is hurting demand for newly built dwellings.
The 1.8 million of inventory of distressed homes nationwide that may reach the market would take about three years to sell at the current pace, Daren Blomquist, communications manager at RealtyTrac Inc., said this month.
As house prices decline, owners feel less wealthy and home equity shrinks, making borrowing more difficult.
Some developers expect demand may stabilize following a poor selling season. Lennar Corp., the third-largest U.S. homebuilder by revenue, last week said second-quarter sales fell from a year earlier and home orders were little changed, while the average price climbed. The 2010 orders were boosted by a federal tax credit for homebuyers that required contracts be signed by April 30.
“While it’s now well-documented that the expected spring selling season of 2011 simply did not materialize, it is beginning to feel like the worst days of the housing market are getting behind us,” Chief Executive Officer Stuart Miller said during a conference call with analysts on June 23.
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