Home prices in 20 U.S. cities rose at a slower pace in July from a year earlier, reflecting a drop in sales following the end of a government tax credit.
The S&P/Case-Shiller index of property values increased 3.2 percent from July 2009, the smallest year-over-year gain since March, the group said today in New York. The gauge is a three- month average, which means the July data are still being influenced by transactions in May and June that may have benefitted from the government homebuyer incentive.
Unemployment close to a 26-year high and mounting foreclosures will probably weigh on the housing market for the rest of the year. With joblessness projected to average more than 9 percent through 2011, some households will continue to have trouble making mortgage payments, indicating foreclosures will remain a hurdle for property values.
“The big happening in housing markets right now is the decline in buyer demand and stagnating supply,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. “A huge portion of potential demand can’t afford a home or get a loan.”
Economists projected prices would rise 3.1 percent year over year, according to the median of 28 forecasts in a Bloomberg News survey. Estimates ranged from increases of 2 percent to 4.2 percent.
The gauge dropped 0.1 percent in July from the prior month after adjusting for seasonal variations, the first decrease since March. Unadjusted prices climbed 0.6 percent from June.
The year-over-year measure provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.
Ten of the 20 cities in the index showed a year-over-year increase, led by an 11 percent gain in San Francisco. That left 10 cities showing a decrease, up from five in June, led by a 4.9 percent drop in Detroit.
Compared with the prior month, 12 of the 20 areas covered showed an increase on an unadjusted basis, led by a 1.6 percent gain in Detroit.
“Anyone looking for home prices to return to the lofty 2005-2006 might be disappointed,” David Blitzer, chairman on the index committee at S&P said in a statement. “Judging from the recent behavior of the housing market, stable prices seem more likely.”
A government tax credit of as much as $8,000 gave housing a temporary lift in late 2009 and early this year and helped prices stop falling. The incentive required contracts be signed by the end of April and closed by June. The closing deadline has since been extended to the end of this month. Since then, the industry has struggled, helping explain why builder shares are depressed.
The Standard & Poor’s Supercomposite Homebuilding index has declined 3.1 percent so far this year, compared with a 2.4 percent gain in the broader S&P 500.
Sales of new homes in August held at a 288,000 annual rate, matching July as the second-lowest in data going back to 1963, Commerce Department figures showed Sept. 24.
After averaging 9.3 percent in 2009, joblessness this year will average 9.6 percent and 9.2 percent in 2011, according to the median forecast of economists surveyed by Bloomberg this month. The last time unemployment exceeded 9 percent for three consecutive years was from 1939 to 1941.
The lack of jobs is also one reason foreclosures are climbing. Home seizures reached a record in August for the third time in five months, RealtyTrac Inc. said Sept. 16.
The Obama administration said Aug. 30 it planned to announce a proposal for an emergency loan program to help the unemployed avoid default. The plan would also include a government mortgage refinancing effort to lower monthly mortgage payments for Americans facing foreclosure.
Orders at KB Home, a California builder focused on first- time buyers, fell 39 percent after the deadline for signing a contract to qualify for the federal tax credit expired. Rising jobless rates and foreclosures make it difficult to forecast future sales, Jeffrey Mezger, the company’s chief executive officer, said Sept. 24.
“The housing market continues to face significant headwinds from high unemployment and foreclosures, which are impeding a broader recovery, and recent net order trends in the homebuilding industry have injected additional caution into our near-term outlook,” Mezger said in a statement.
© Copyright 2015 Bloomberg News. All rights reserved.