House prices: Latest US index falls, a signal of weakness

Reversing four months of gains, a key US house price index fell modestly in August, and some economists see more declines ahead. But the index is still well off the recession's low point.

Lucy Nicholson/Reuters
A man walks past open house signs in front of condominiums for sale in Santa Monica, California, on Oct. 17. A widely watched index of home prices posted a decline for the month of August, a signal of renewed weakness in the US housing market.

After four months of gains, a widely watched index of home prices posted a decline for the month of August, a signal of renewed weakness in the US housing market.

The S&P/Case-Shiller Home Price Index fell 0.2 percent for the month, Standard & Poor's reported Tuesday. On Monday the National Association of Realtors gave its snapshot of housing activity in September, which also showed a dip in prices.

Economists interpreted the news as a sign of "payback" in the housing market following the end of a federal tax credit for home buyers, which buoyed buying activity through early summer. Some buyers rushed to grab that incentive, leaving a dearth of demand later in the summer.

In a broader view, however, the housing market has stabilized considerably since the depths of the recession, when home prices were in a freefall. Now, even with the dip in August, the Case-Shiller index of 20 US cities remains 6.7 percent higher than it was in April 2009 (its recession low point).

Many economists predict that home prices are likely to head lower again in the months ahead. But they generally forecast modest declines (some see a 5 percent drop ahead) rather than the kind of plunge that occurred between 2006 and early 2009 as a housing bubble collapsed.

"Home prices broadly declined in August. Seventeen of the 20 cities ... saw a weakening in year-over-year figures,” said David M. Blitzer, chairman of S&P's index committee, in releasing the numbers. "It does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers’ tax credits.”

Investigations into foreclosures that have sometimes occurred with improper documentation could also slow home-sale activity in the near term, economists say.

The price changes in August were modest across all 20 cities tracked by S&P. The biggest month-over-month decline was in Phoenix (1.3 percent) and the biggest gain was in Detroit (0.5 percent).

After rising in the months starting in May 2009, the index is little changed over the past 12 months (up just 1.7 percent). The biggest 12-month decline has been a 4.5 percent drop in Las Vegas, while the biggest one-year gain has been a 7.8 percent jump in San Francisco.

The index also gives homeowners a rough gauge of the longer-run change in home values.

Despite the drop in prices since 2006, homes from Los Angeles and Seattle to Boston and Miami are still up more than 45 percent since 2000. That handily beats the overall US inflation, which according to the Labor Department has been about 27 percent during that time.

Some cities, however, now have home values that are lower than a decade ago, on an inflation-adjusted basis. Those include erstwhile boom cities like Las Vegas and Phoenix.

In other places that never had a huge price boom, home values haven't kept pace with national inflation over the past decade either. These cities include Atlanta, Cleveland, and Charlotte, N.C., and Detroit, which was hit especially hard by the decline of Michigan's auto industry.

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