Home Prices Probably Increased First Time in 3 Years

The trend in U.S. home prices probably turned up in February for the first time in more than three years, and consumers became less pessimistic this month as the jobs picture brightened, economists projected reports today will show.
By: Shobhana Chadra: Bloomberg.com
The S&P/Case-Shiller index of property values in 20 cities climbed 1.3 percent from February 2009, the first year-over-year gain since December 2006, according to the median forecast of 22 economists surveyed by Bloomberg News.
A report from the Conference Board may show sentiment improved for a second month.

Home prices in January were 30 percent below the peak reached in July 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. A pickup in employment is needed to help stem the damage from mounting foreclosures and to sustain recent gains in household spending.

“The bottom has been reached in home prices and we’re now seeing gradual improvement,” said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania. “Prices will move upward but we’re not going to get spectacular gains any time soon because of all the troubled houses out there.”

The S&P/Case-Shiller figures, due at 9 a.m., would follow a 0.7 percent year-over-year drop in January. Bloomberg survey forecasts ranged from a decline of 0.8 percent to an increase of 1.6 percent. Year-over-year records began in 2001.

Year-Over-Year

While the data also include month-to-month changes in prices adjusted for seasonal variations, it’s best to focus on the year-over-year trends, the group charged with issuing the report said on April 20. The panel includes Karl Case and Robert Shiller, the economists who created the gauges.

The seasonally adjusted and unadjusted series “have given conflicting signals” recently, with the former rising while the latter fell, the group said in a statement. The turmoil in housing in the past few years has influenced the models used in adjusting the data, “resulting in larger seasonal adjustments and misleading results,” according to the group.

The New York-based Conference Board’s sentiment index is due at 10 a.m. The gauge probably rose to 53.5 from 52.5 in March, according to the survey median. Estimates ranged from 48 to 57, and the measure averaged 98 during the economic expansion that ended in December 2007.

“Once people feel there’s more job security, consumer confidence will come back up faster,” Naroff said. “We need faster employment growth.”

Payroll Gains

Employers in the world’s largest economy added workers to payrolls in March for the third time in the past five months, according to figures from the Labor Department.

Reflecting the stabilization in housing, the Standard & Poor’s Supercomposite Homebuilder index, which includes Pulte Group Inc. and Lennar Corp., has gained 26 percent this year compared with a 8.7 percent rise in the broader S&P 500 Index.

Prices may improve in coming months as homebuyers rush to take advantage of a government tax credit worth as much as $8,000 before it expires. Purchase contracts must be signed by the end of this week and transactions need to close by the end of June in order for buyers to be eligible.

Growing demand may help offset the pressure on prices from mounting foreclosures. Filings jumped 16 percent in the first quarter from a year earlier, and bank seizures reached a record, according to Irvine, California-based RealtyTrac Inc. Foreclosures push up the number of homes on the market, forcing builders and sellers to make concessions to get deals done.

Some businesses see better prospects. M.D.C. Holdings Inc., the Denver-based builder of Richmond American Homes, said its loss narrowed in the first quarter from a year earlier as orders jumped 38 percent.

“While this trend is encouraging, we remain cautious due to the impending expiration of the federal homebuyer tax credit and depressed overall economic conditions,” Chief Executive Officer Larry Mizel said in an April 23 statement.