Index shows home prices continue rising for seventh straight month

By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, February 24, 2010; A09

Home prices continued to climb for the seventh consecutive month in December, according to a report released Tuesday that provided yet another hopeful sign that the battered housing market may be slowly recovering.

The Standard & Poor's/Case-Shiller home-price index, a closely watched measure of the housing market's health, showed that prices of single-family homes rose in most parts of the country when adjusted for seasonal factors, climbing 0.3 percent in December from November. That's the biggest monthly rise since August.

Prices remain 3.1 percent lower than they were in December 2008. Even so, that drop is the smallest year-over-year decline in any month going back to May 2007, said Michael Larson, an analyst with Weiss Research.

"These are healthy numbers," Larson said. "It's not a runaway market. Some markets are still down, but the degree to which prices are shrinking in those markets is smaller."

The housing market's collapse crippled the economy and the sector's rebound is considered critical to getting economic activity back on track.

But while the latest price figures look promising, swelling unemployment and related mortgage delinquencies and foreclosures threaten to upend these gains because distressed properties tend to drag down prices. Many economists predict that prices still have further to fall.

The Case-Shiller index measures repeat sales of homes and reflects a rolling three-month average, so the December data captured transactions that closed in October and November, as well.

The index broke out numbers for 20 major metropolitan areas and found that prices fell in only five of them: Chicago, Cleveland, Miami, New York and Tampa.

Prices were flat in Atlanta and up in every other region. Los Angeles and Phoenix led the pack, with gains of 1.4 percent and 1.2 percent, respectively. Washington-area prices climbed 0.5 percent.

Without adjusting for seasonal factors, the index was down 0.2 percent. But since home-buying activity generally declines in the winter months, experts who track the industry prefer to rely on seasonally adjusted data, which correct for that, to measure the underlying trend.

"We are in a seasonally slow period for home prices, however, so it is not surprising to see better statistics in the seasonally adjusted data," David M. Blitzer, chairman of the index committee, said in a statement.

But many economists question whether the December gains can be sustained. They say that the price improvements are linked to temporary measures that helped stimulate sales. Those include efforts by the Federal Reserve to keep interest rates at historically low levels and a federal tax credit for first-time home buyers.

Rock-bottom prices in areas hit hard by foreclosures also energized sales. Buyers snapped up deals and helped shrink the excess supply of homes, which helped stabilize prices.

But Paul Ashworth, a senior economist at Capital Economics, said he expects that sales will slump and drive prices back down once the tax credit expires in April.

"We expect to see a double-dip in house prices develop later this year," Ashworth wrote in a note to clients

Patrick Newport, an economist at IHS Global Insight, said he expects prices to fall another 5 percent next year, especially if the number of foreclosures rises as expected and the market remains flooded with unsold homes.

Robert J. Shiller, one of the economists who created the index, said the dramatic swing in home prices has been unprecedented.

There was an 11 percent drop for the six months ended in April 2009 followed by a 6 percent increase in the six months after that. Given the market's volatility, predicting any trends is tough, he said.

For now, most of the areas hardest hit by price declines are regions where prices soared during the boom years, including Las Vegas and Tampa, which showed double-digit declines at the end of last year compared with a year earlier.

Average home prices as of the fourth quarter were back to where they were in mid-2003, the Case-Shiller index report said.

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