Posted on Wednesday, October 27, 2010
By Alan Rappeport in New York
Published: October 26 2010 14:24 | Last updated: October 26 2010 18:03
US house prices tumbled in August, raising fears that uncertainty surrounding foreclosure moratoriums could send the fragile real estate market into an end-of-year swoon.
Home prices in the biggest US cities fell 0.2 per cent from July to August, according to the S&P/Case-Shiller index. That was worse than analysts expected and left prices up just 1.7 per cent from the same month a year ago.
David Blitzer, chairman of S&P’s index committee, called the report “disappointing” and said: “The housing market appears to have stabilised at new lows.”
The market has been plagued by doubts about foreclosures, which have reached record levels.
“At this point there is a lot of uncertainty about how the moratoria will play out and that will weigh on the macro environment,” said Michelle Meyer, at Bank of America Merrill Lynch.
Ms Meyer said that if bank-imposed foreclosure freezes dragged on there could be a temporary boost in home prices because of a smaller proportion of distressed sales. However, the effect of a flood of fore-closures once these moratoriums were lifted risked widening the imbalance between housing inventory and demand, causing steep slides in prices.
Of the top 20 markets tracked by S&P, prices fell in 15 cities on a monthly basis in August. Meanwhile, the tepid year-on-year increase revealed slowing growth from previous months as the housing market copes with the withdrawal of government stimulus measures.
Home prices could continue to fall by as much as 0.5 per cent a month for the next few months, argues Ian Shepherdson, of High Frequency Economics, as buyers remain on the sidelines and the momentum from the first-time homebuyer tax credit wanes.
Phoenix, Dallas, Atlanta, Portland and Seattle had the steepest monthly declines in August, while prices picked up in New York, Washington, Chicago, Detroit and Las Vegas, the hardest hit market in the US. Since peaking in the summer of 2006, home prices have plunged nearly 30 per cent and now sit at 2003 levels.
Steven Hawks, a realtor in Nevada, said that foreclosures freezes are going to further depress the market in his state by “artificially holding back inventory” and making it impossible for buyers and sellers to determine the true value of homes.
In spite of fears about a “double-dip” in the housing market, there have been some signs of stability recently. Freddie Mac said on Tuesday that delinquencies were declining and loan modifications were on the rise, as struggling homeowners made progress avoiding eviction, and the National Association of Realtors reported a rise in September home resales.
A separate report from the Conference Board showed that consumer sentiment was lifted in early October by rosier outlooks for the next six months. But analysts fear that the troubles facing the housing market could make that optimism short lived.