US home prices rose for the fourth month running in August, extending the housing market’s rebound after a historic collapse, but labour market fears have darkened the moods of consumers.
House prices rose by 1.2 per cent from July to August, according to the closely watched S&P/Case-Shiller index. The figures beat economists’ expectations, with 17 out of 20 cities reporting monthly gains.
Separately on Tuesday, the Conference Board’s index of consumer confidence dropped from 53.4 last month to 47.7 in October as pessimism took hold.
Compared with a year ago, house prices were off by 11.3 per cent and the rate of annual declines has eased in each of the past seven months. Economists at High Frequency Economics note that house prices have climbed at an annual rate of 6.7 per cent in the three months to August compared with the prior three months.
“Broadly speaking, the rate of annual decline in home price values continues to improve,” said David Blitzer, chairman of the Standard & Poor’s index committee, which publishes the report.
However, Mr Blitzer noted that the home price rebound remains fragile, with the $8,000 first-time home buyer tax credit set to expire at the end of November and unemployment rates likely to continue rising through the rest of the year.
“Both may have a dampening effect on home prices,” Mr Blitzer said.
Home prices plunged by 33.5 per cent from July 2006 to April 2009, when they began to rise. Although the recent stirring of activity has been welcome, some economists warn that it could be temporary.
“While many are interpreting the most recent results from this index as indicative of a bottom in home prices, we do not believe this to be the case,” said Joshua Shapiro, chief US economist at MFR.
“Rather, this is probably a correction after unsustainable 2-3 per cent per month declines recorded over the autumn and winter months when the overall economy was in freefall.”
Michelle Meyer, an economist at Barclays Capital, argues that while the housing freefall has ended, it remains too early to say the market has bottomed out as foreclosures are continuing to flood the market. She projects that home prices will fall another 8 per cent on the Case-Shiller index through the first quarter of next year, with the peak-to-trough decline ultimately hitting 36 per cent.
Cleveland, Charlotte and Las Vegas were the only cities that reported monthly home price declines in August, while Minneapolis, San Francisco and Detroit notched the biggest gains.
Meanwhile, a big drop in sentiment about current conditions pulled back consumer confidence in October. The Conference Board’s “present situation” index fell to its lowest level in 26 years, in spite of the recent rally in home prices and equity markets, and more people had negative feelings about business conditions and their ability to find work.
“The end of ‘cash for clunkers’, and, more importantly, increases in oil prices are some possible factors, but whichever way we slice this, the US consumer is a long way from an ebullient mood,” said Alan Ruskin, a strategist at RBS Greenwich Capital.
Source: Financial Times