S&P/Case-Shiller: Home Prices Rise in June. Tax Credit Hangover Ahead

The Standard & Poor's/Case-Shiller  U.S. National Home Price Index was up 4.4 percent in the second quarter of 2010, more than recovering from the 2.9 percent loss that was suffered in the first quarter, but the index committee warned that recent housing indicators "point to more ominous signals as tax incentives have ended and foreclosures continue." 

 On a month to month basis, the 10-city index improved 1.0 percent to 161.04 and the 20-city index rose 1.0 percent to 147.97.

The year over year 10-City and 20 City Composite Indices for June marked the first time in 16 months that the increase in annual returns moderated, pointing to a possible deceleration in home price returns.  In May the YoY increase in the 10-City Composite was 5.4 percent, in June it was 5.0 percent.  The 20-City figure dropped from a 4.6 percent increase in May to 4.2 percent in June.

David M. Blitzer, Chairman of the Index Committee at Standard & Poor's pointed out that current figures for the Composites cover June and the National Index covers the 2nd quarter when the homebuyer's tax credit was winding down.  "While the numbers are upbeat," he said, "other more recent data on home sales and mortgages point to fewer gains ahead."  Nonetheless, he said the housing market is in better shape than one year earlier.

National home prices hit bottom in the first quarter of 2009 and since then have appreciated by 6.8 percent.  Prices have now returned to 2003 levels.

Both Composites and 17 of the 20 cities in the National Index saw price increases in June, but in 14 cities the increase was smaller than a month earlier; only in Las Vegas did prices fall, down 0.6 percent while Phoenix and Seattle prices were flat.  The largest increases were in Minneapolis and Detroit, both up 2.5 percent.  This was slightly lower than the increase experienced by Minneapolis in May, but a dramatic increase from the 0.8 percent increase in Detroit in May. 

Blitzer said that, while the indices have positive annual growth rates, and no market is registering a double-digit decline, "the worry starts when you remember that the Homebuyers' Tax Credit has expired, foreclosures are still at high levels, and July data on home sales and starts were very, very weak.  The inventory of unsold homes and months' supply data were particularly troubling.  If this relatives weakness in demand continues, it will likely filter through to home prices in coming months."

The S&P/Case-Shiller Indices are constructed to track the price path of typical single-family homes located in each of the census regions or metropolitan areas covered.  Each index combines matched price pairs for thousands of individual homes from the available universe of arms-length sales data. The City composites are value weighted averages of the ten or 20 metropolitan area indices.  The indices were given a base value of 100 in January 2000 so a current value of 150 would indicate a 50 percent price increase for a typical home in that area since that date.