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Home prices rise in May, but will gains last?

Home prices are likely to start falling later this year, analysts say, because the homebuyer's tax credit has expired.

By / July 27, 2010

Home sales prices are up since this house in Los Angeles was up for sale in February, according to the Standard and Poor's/Case Shiller 20-city index. The gains in May reflect robust spring sales spurred by homebuyer tax credits.

Mario Anzuoni/Reuters/File

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Home prices rose in May, but don't expect those price gains to last.

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Real estate prices are likely to fall again as the boost from the government's homebuyer tax credit fades.

In May, the S&P/Case-Shiller 20-city index was up for the third month in a row and was 4.6 percent ahead of the same period a year ago, Standard & Poor's reported Tuesday (.pdf). All but one of the 20 cities recorded an increase from April.

The report offered little cheer, however.

"While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” David Blitzer, chairman of S&P's index committee, said in a statement. “"The last seven months have basically been flat.”

Home prices may start trending down again in the next few months because the homebuyer tax credit expired April 30.

"With the credit now behind us, the housing numbers are taking a beating," wrote Patrick Newport, an economist with IHS Global Insight, in an analysis. "In our view, the housing glut and foreclosures will drive the national Case-Shiller index down another 6 to 8 percent, with prices bottoming in 2011."

If that forecast holds true, housing prices will fall to a new post-recession low. A 6 percent decline would wipe out all the price gains the 20-city composite index has experienced since early 2003.

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