Home prices inch up, but analysts fear rebound is fading

By Renae Merle
Washington Post Staff Writer
Wednesday, March 31, 2010

Home prices rose modestly in January, according to a closely watched index released Tuesday, but some housing industry analysts remain concerned about the sustainability of the housing sector rebound.

Home prices in 20 cities tracked by the Standard & Poor's/Case-Shiller home price index rose 0.3 percent on a seasonally adjusted basis in January compared with December. That was the eighth consecutive monthly increase in the index. Compared with the same period a year earlier, prices were down 0.7 percent.

"We need to see house prices improving, so it's a good start on that," said Robert A. Dye, a senior economist at PNC Financial Services Group.

On a seasonally adjusted basis, prices were up the most in Los Angeles, 1.8 percent, and San Diego, 0.9 percent, compared with the previous month. They were up 0.2 percent in the Washington region, according to the report.

But the news wasn't all good. The Case-Shiller index measures a three-month average of home prices, so January's report includes data from November, when homes sales were strong, helping blunt price declines. Also, in four markets -- Charlotte, Las Vegas, Seattle and Tampa -- prices fell to new lows since the financial crisis on a non-seasonally-adjusted basis, according to the report. Overall, home prices remain at 2003 levels.

The report is "mixed," David M. Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. The "rebound in housing prices seen last fall is fading." And given the data, he said, "we can't say we're out of the woods yet."

Housing analysts are worried that an expected increase in foreclosures hitting the market could put pressure on prices this year. Also, a Federal Reserve program that has kept interest rates low ends Wednesday. If mortgage rates rise later this year as expected, some potential buyers might stay on the sidelines.

Home sales have been weak since a tax credit for first-time home buyers was initially scheduled to expire in November. Existing-home sales have fallen 23 percent since then, for example. Congress extended the tax credit, giving buyers until April 30 to sign a contract for a home, and expanded it to more buyers. But "the second credit, up to now, is having minimal effects," said Patrick Newport, an economist with IHS Global Insight.

Many buyers at the tipping point of making a home purchase probably took advantage of the tax credit the first time, Dye said. "That group now has been used up. I would expect to see a smaller marginal effect from the tax credit going forward," he said.

Even if home prices rise during the spring buying season, they are likely to fall again during the second half of the year, analysts said. IHS Global Insight is expecting prices to fall another 5 percent this year. "There is some turbulence out there that I am concerned about," Dye said.

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