Home Prices in 20 U.S. Cities Declined at Slower Pace (Update2)

April 28 (Bloomberg) -- The decline in home prices in 20 major U.S. cities slowed in February for the first time since 2007, amplifying signals that the market may be stabilizing.

The S&P/Case-Shiller index’s 18.6 percent decrease compares with a record 19 percent decline the month before. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

Declining prices, Federal Reserve efforts to bring mortgage rates down, and government tax credits for first-time buyers may continue to support sales after an almost four-year slide. Still, mounting unemployment means purchases are unlikely to rebound quickly.

“We’re probably getting close to an inflection point,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who correctly forecast the drop in the index. Still, he said, “if we are indeed going to see a recovery in the second half,” the double-digit price drops will need to abate in the next few months.

Economists forecast the index would drop 18.7 percent from a year earlier, according to the median of 27 projections in a Bloomberg News survey. Estimates ranged from declines of 17 percent to 19.2 percent.

Compared with a month earlier, home prices fell 2.2 percent in February, after a 2.8 percent decline in January, today’s report showed.

December 2005

On an annual basis, today’s figures showed the first improvement in the rate of change since December 2005. The index started falling in January 2007.

The price figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month.

All 20 cities in the index showed a year-over-year price decrease in February, led by a 35 percent drop in Phoenix, a 32 percent decline in Las Vegas and a 31 percent slide in San Francisco. Compared with the prior month, prices also fell in all 20 cities.

“While the declines in residential real estate continued into February, we witnessed some deceleration in the rate of decline in some of the markets,” David Blitzer, chairman of the index committee at S&P, said in a statement.

A total of 803,489 properties received a default of auction notice or were seized in the first quarter of 2009, the highest since records began four years ago, according to RealtyTrac Inc., an Irvine, California-based seller of mortgage data.

Jobs, Confidence

Job losses threaten to keep prices down and force more homes into foreclosure, economists such as IDEAglobal’s Maxwell Clarke said. The U.S. unemployment rate jumped in March to the highest level since 1983 and the number of jobs lost exceeded 650,000 for the fourth straight month, according to Labor Department data.

A separate report today showed consumer confidence jumped by the most since 2005 this month, helped by a rally in stocks, a drop in mortgage rates and a brighter outlook for jobs. The Conference Board measure increased to 39.2, the highest level since November, from 26.9 in March. The share of consumers who said more jobs will be available in the next six months rose to 13.9, the most since June 2007.

Three-Month Average

The 20-city home-price index is calculated monthly, using a three-month moving average, according to the Standard and Poor’s Web site. That means the February report includes sales from December and January, when price drops were worse, said Thomas Lawler, a former Fannie Mae economist who is an independent consultant in Leesburg, Virginia.

“When people looking at the index with hope or despair as to what it means for their home’s value at the present moment, it doesn’t necessarily give them that information,” Lawler said. “If the data were just February, we would have seen a much slower rate of decline.”

Foreclosure-driven declines in prices have spurred home resales. Purchases in March stayed near a four-month average and prices rose from February, according to data from the National Association of Realtors. About half of the March existing-home sales were of distressed properties and first-time buyers accounted for about 51 percent, the group said last week.

Sales of new homes in March were higher than economists forecast, according to Commerce Department data released last week. They fell 0.6 percent to an annual pace of 356,000 after a revised 358,000 in February that was stronger than previously estimated. Inventories of new homes fell to a seven-year low.

First-Time Buyers

KB Home, the Los Angeles-based homebuilder that targets first-time buyers, is among those in the industry seeing an improvement. The company last month reported a narrower first- quarter loss as orders rose for the first time in three years.

Steps to lower borrowing costs and unclog lending have helped push mortgage rates down in recent months. The average rate on a 30-year fixed mortgage reached a record low of 4.78 percent in the week ended April 2, according to Freddie Mac.

Fed officials will tomorrow announce their decision on the direction of the benchmark overnight lending rate between banks.

The National Association of Realtors’s affordability index, which tracks mortgage rates, home prices and incomes, surged in February to the highest level in 20 years of data.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net