Home prices rose in June for a third straight month as now-expired tax credits inspired a burst of home-buying. But prices are expected to fall through the rest of the year now that demand has faded.
Home prices nationally were up 4.4 percent in the April-to-June quarter. That followed a decline of 2.8 percent in the January-to-March quarter. The jump was largely because buyers could take advantage of government tax credits of up to $8,000.
Home sales have dropped sharply since those incentives expired. Lending standards remain tight, unemployment is stuck near double digits and foreclosures are expected to remain at extraordinary levels.
"We do not take this report as a signal of future strength," wrote BNP Paribas economist Yelena Shulyatyeva. She expects the Case-Shiller report to show price declines by August. Economists at IHS Global Insight project home prices will fall by up to 8 percent and hit the bottom sometime next year.
The biggest monthly increases in June were in Chicago, Detroit and Minneapolis. Prices rose 2.5 percent in each of those cities. Prices in Seattle and Phoenix were flat. Home prices in Las Vegas fell 0.6 percent.
Nationally, prices have risen 6 percent from their April 2009 bottom. But they remain 28 percent below their July 2006 peak.
Prices are widely expected to fall in the second half of the year. Sales of previously occupied homes plunged in July to the lowest level in 15 years, despite the lowest mortgage rates in decades and bargain prices in many areas.
The inventory of unsold homes on the market has grown. At the current sales pace, it would take more than a year to exhaust the inventory on the market nationwide, compared with a healthy level of about six months.
When unsold homes sit on the market, sellers are forced to lower their asking prices. And homeowners looking to trade up may be forced to back out of purchases because they can't sell their homes.
Pam Geller and her husband have been trying to sell their two-bedroom condominium in Los Angeles so they can buy a house. It remains unsold after more than two months on the market, even after the couple lowered the price to $359,000 from $399,000.
They're close to completing the purchase of their next home. But the deal will collapse unless they find a buyer in two weeks. Geller said she's unwilling to slash the price further.
With home prices likely to fall, Geller wonders if it might be better to wait to buy another home. "What I see is houses still dropping" in value, she said.