By Renae Merle
Washington Post Staff Writer
Wednesday, October 28, 2009
Home prices posted another modest rise in August, according to data released Tuesday, but economists cautioned that the expiration of a home-buyer tax credit and rising unemployment could reverse signs of stabilization in the housing market.
In 20 large metropolitan cities, home prices rose 1 percent on a seasonally adjusted basis in August compared with the previous month, according to the S&P/Case-Shiller Home Price Index. That was the third month-over-month increase in the closely watched index.
Prices are still falling compared with a year ago, down 11.3 percent in August, and are off 30.2 percent from their peak in 2006, hovering at 2003 levels, according to the index.
But bolstered by historically low interest rates, cheap foreclosure properties and the $8,000 tax credit for first-time home buyers, prices are falling at a slower rate and the monthly increase reflects stabilization, economists said.
"It's a sign that there is a bottom in sight," said Cameron Findlay, chief economist for LendingTree.com, an online mortgage company. It bodes well, he said, for "stabilization of home prices."
Most of the cities tracked by the index had a rise in home prices in August, including San Francisco, where prices increased 2.6 percent compared with the previous month, and Minneapolis, where they climbed 2.3 percent on a seasonally adjusted basis. In the Washington region, prices rose 1.2 percent in August, but were down 7.9 percent compared with the same period last year.
And some parts of the country continued to struggle with monthly price declines. Prices fell on a seasonally adjusted basis in Charlotte and Seattle by less than half a percent. They were down 1 percent in Cleveland, and 0.8 percent in Las Vegas.
Economists cautioned, however, that the recent price stabilization is probably temporary. Rising unemployment will push more borrowers into foreclosure later this year, dumping more properties onto the market, they said. And the $8,000 tax credit for first-time home buyers generated temporary demand as buyers who otherwise might have waited to buy a house rushed to cash in before the credit vanished.
But when the credit expires Nov. 30, home sales are likely to wane, analysts said. And prices could fall another 5 to 8 percent before starting to stabilize again next year, they said. Industry lobbyists are pushing Congress to extend the credit.
When the credit expires, "demand will take a hit -- home sales will drop -- and house prices will resume their downward course, brought down by the weight of rising foreclosures and rising unemployment rates," Patrick Newport, an economist for IHS Global Insight, wrote in a research note.