Paul Davidson
USA Today
Home prices were flat in October after rising five months in a row, but economists say the housing market at least has stabilized after a three-year free fall.
Experts, however, are split over whether prices will resume their climb or decline moderately again next year before mounting a more sustainable rebound.
Housing prices were unchanged from September (not seasonally adjusted), according to the Standard & Poor’s/Case-Shiller home price index, which tracks 20 large cities. Prices rose in seven of the 20 metro areas, down from nine in September and 18 last summer.
Overall, home prices are up 5.3% from their April low, partly on cheap mortgage rates and a tax credit for first-time home buyers that Congress extended to April 30 and expanded to existing homeowners.
David Blitzer, who oversees the survey for Standard & Poor’s, says he’s not surprised by the slowdown, noting the run-up was fueled by the stock market rally and pent-up demand.
“We got a pretty good bounce in late spring and early summer, and it was coming a lot faster than people expected,” Blitzer says. “Now it’s settling down to a more sustainable pace.”
In October, prices rose in Los Angeles, San Francisco, Seattle, San Diego, Phoenix, Detroit and Portland, Ore. Homeowners are still beset by an epic real estate bust. Home prices in the 20 cities are down 29% from their peak in the second quarter of 2006.
The good news is that year-over-year declines have eased steadily and dramatically this year. The average drop in home prices for the 20 cities in October vs. a year earlier was 7.3%, down from 9.4% in September and 19% in January.
Economists differ over what will happen in 2010. Patrick Newport of IHS Global Insight predicts values will fall an additional 5% to 10%. He cites a new wave of foreclosed homes that will drive up supply and the reduced impact of the tax credit. Most home buyers who wanted to take advantage of the credit did so before it was originally slated to expire Nov. 30, he says.
But Joel Naroff of Naroff Economic Advisors expects home values to rise 3% to 6% next year despite the fresh crop of foreclosed homes. He expects banks to ease tight lending standards that have limited sales of expensive homes. Meanwhile, unemployment will fall modestly, emboldening leery consumers, and the tax credit will spur more buyers as the April deadline nears, Naroff says.
Separately, a closely watched index of consumer confidencerose to 52.9 in December, up from 50.6 the previous month and in line with analysts’ estimates. The critical “expectations index,” which measures consumers’ short-term outlook, jumped from 70.3 to 75.6, its highest level in two years.
Also, 16.2% of consumers expect more jobs to become available in the next six months, up from 15.8% in November. The portion expecting fewer jobs fell to 20.7% from 23.1%. The overall index is up from its low of 25.3 in February but is still quite weak by historical standards.
