Housing Data Signal Small Pickup

The Wall Street Journal

Home-Price Drops Slow in Big Cities; Phoenix Hit Hard

Home prices are improving in some parts of the country but still falling sharply in places like Phoenix, as the weak housing market and shaky consumer confidence continue to weigh on the U.S. economy.

“We’re starting to see some hopeful signals in parts of the country,” said Nigel Gault, chief U.S. economist at Global Insight, a Lexington, Mass.-based forecasting firm.

On a monthly basis, home-price declines in the nation’s largest cities slowed in June, according to the S&P/Case-Shiller home-price indexes released Tuesday. Prices fell 0.6% on average from the month before after falling by 1% in May. The June performance was a marked improvement from monthly drops of 2% to 2.5% that occurred earlier this year.

But prices are still much lower than they were a year ago. Home prices in 10 major metropolitan areas in June fell 17% from the year before, though the declines appear to be moderating. The broader 20-city index showed similar patterns. A separate gauge of home prices by the Office of Federal Housing Enterprise Oversight, which covers more of the country but only tracks mortgages backed by Fannie Mae and Freddie Mac, found home prices were unchanged in June from the month before.

Nine of the 20 metropolitan areas tracked by the S&P/Case-Shiller index posted monthly price gains in June. They included Denver, where prices grew 1.5%, and Boston, where prices rose 1.2%. Phoenix, meanwhile, was the worst performer last month; prices fell 2.6%. Prices also fell sharply in Miami, Las Vegas and Los Angeles.

“Prices are still falling very steeply in the areas that got most overheated and further declines will be necessary in those regions for sure,” Mr. Gault said.

Meanwhile, aggressive price-cutting by homebuilders and a severe pullback in construction of new homes over the past year is beginning to stabilize new-home sales, which make up about 15% of the total market.

Sales of new homes rose by 2.4% in July to a seasonally adjusted annual rate of 515,000 units after falling to a revised, 17-year low in June, the Commerce Department said Tuesday. The inventory of unsold homes declined for the second month in a row, to 10.1 months’ supply at the current sales pace. Still, the number of unsold homes remains at historically high levels.

“There’s still a big overhang of homes on the market that need to clear,” said Lehman Brothers economist Michelle Meyer.

On Monday, the National Association of Realtors reported that there was an 11.2 months’ supply of previously-owned homes for sale last month, compared to about a six-month supply that usually accompanies healthy housing markets. Sales of previously-owned homes make up about 85% of the market and have been hampered by a flood of foreclosed properties that’s expected to continue through next year.

Economists caution that home sales and prices may have worsened in recent weeks as mortgage conditions have tightened, lending rates have risen, and concerns about the solvency of Fannie Mae and Freddie Mac have intensified.

Separately, a gauge of consumer confidence produced by the Conference Board, a New York-based research group, shows consumers remain worried about current economic conditions, a sign their spending may continue to slow.

The overall index rose five points this month to 56.9 following levels of 51.9 in July and 51 in June, which was the lowest since 1992. The brighter outlook is largely attributed to the decline in gas prices since mid-July. Nevertheless, consumers’ assessment of current conditions declined, and the percentage of those describing jobs as “plentiful” dropped for the seventh month in a row.

As a result, Lehman Brothers economists expect consumer spending, the largest driver of U.S. economic growth, to be flat during the July-through-September period and then to decline through the first part of next year, the first such decline in consumption since the 1990-91 recession.