Home Prices in U.S. Cities Rose Less Than Forecast

Home prices in 20 U.S. cities rose in September at the slowest pace in eight months, showing the latest slump in sales is destabilizing housing.

The S&P/Case-Shiller index of property values climbed 0.6 percent from September 2009, the smallest gain since January, the last time prices declined year over year, the group said today in New York. The increase was smaller than the 1 percent median forecast in a Bloomberg News survey of economists.

The end of a government tax credit and unemployment near 10 percent have led to a decrease in demand, delaying a recovery in the industry that precipitated the worst recession since the 1930s. Mounting foreclosures and declining home values threaten to undermine the improvement in consumer confidence that is helping boost spending and accelerate economic growth.

Housing “is on the brink of another substantial downturn,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “Supply far exceeds demand and the only remedy is further price declines.”

Separate reports today showed businesses in the U.S. expanded at a faster pace than forecast in November and a measure of consumer confidence climbed to a five-month high.

The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 62.5 this month, highest since April, from 60.6 in October. Figures greater than 50 signal expansion. The median forecast of 63 economists surveyed by Bloomberg News projected the gauge would fall to 59.9.

Consumer Confidence

The Conference Board’s confidence index increased to 54.1 in November, exceeding the median forecast in a Bloomberg News survey, from a revised 49.9 in October. Measures of employment and income expectations improved.

Stocks declined on concern Europe’s debt crisis is worsening. The Standard & Poor’s 500 Index fell 0.6 percent to 1,180.62 at 10:04 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.77 percent from 2.82 percent late yesterday.

The median forecast was based on projections of 28 economists surveyed. Estimates ranged from an increase of 1.6 percent to a decline of 3.4 percent. Year-over-year records began in 2001. Prices climbed 1.7 percent in the year ended August.

The gauge fell 0.8 percent in September from the prior month after adjusting for seasonal variations, the biggest drop since April 2009, following an August decrease of 0.5 percent. Unadjusted prices fell 0.7 percent from the prior month.

Price Trends

The year-over-year gauge 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.

Nationally, prices decreased 1.5 percent in the third quarter from the same time last year and were down 2 percent from the previous three months.

Fifteen of the 20 cities in the S&P/Case-Shiller index showed a year-over-year decline, led by a 5.6 percent drop in Chicago. San Francisco showed the biggest year-over-year increase, with prices rising 5.5 percent.

Compared with the prior month, 18 of the 20 areas covered showed a decrease on an unadjusted basis, led by Cleveland. The only two showing month-over-month increases were Washington and Las Vegas.

‘Weak Report’

“Another weak report,” David Blitzer, chairman of the index committee at S&P, said in a statement. “The national economy is certainly the number one issue for housing. Additionally, there is a large supply of houses on the market and further, hidden, supply due to delinquent mortgages, pending foreclosures or vacant homes.”

Housing demand has slumped after a tax credit worth as much as $8,000 expired in June. Sales of existing homes, which now make up more than 90 percent of the market, fell more than forecast in October as foreclosure moratoriums and a lack of credit disrupted real estate, figures from the National Association of Realtors showed last week. In July, sales ran at the weakest pace in a decade’s worth of record-keeping by the group.

The Case-Shiller gauge is based on a three-month average, which means the September data are still being influenced by the plunge in transactions in August and July.

The Federal Reserve announced this month it will buy another $600 billion in Treasury securities through June in a bid to keep borrowing costs low and spur growth. The weakness in housing figured in their deliberations.

Interest Rates

“Despite further declines in mortgage interest rates in recent months, other factors continued to restrain housing demand, including consumer pessimism about the outlook for jobs and income, the depressed rate of household formation, and tight underwriting standards for mortgages,” Fed policy makers said in minutes of their Nov. 2-3 meeting released Nov. 23.

D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects sales will remain weak in 2011, and Chief Executive Officer Donald Tomnitz said plans to lift business include “adjusting our price points” to demand.

“We expect another very challenging year for the homebuilding industry as the fundamental drivers of demand --the overall economy, job growth and consumer confidence -- are still very weak,” Tomnitz said on a conference call with analysts on Nov. 12.

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               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
============================================================
US Composite-20  -0.71%   -0.34%    0.59%   -8.75%  -24.63%
------------------------------------------------------------
Washington DC     0.33%    1.58%    4.47%   -0.64%  -17.65%
Las Vegas         0.15%   -0.58%   -3.47%  -31.10%  -52.60%
Los Angeles      -0.11%   -0.17%    4.36%   -4.97%  -31.17%
New York         -0.34%    1.01%   -0.13%   -8.91%  -15.41%
Seattle          -0.59%   -1.20%   -2.60%  -16.06%  -24.31%
Tampa            -0.79%   -1.54%   -4.29%  -20.32%  -35.07%
San Francisco    -0.90%   -0.71%    5.50%   -2.74%  -31.44%
San Diego        -0.95%   -0.85%    4.96%   -1.03%  -27.10%
Denver           -0.97%   -1.46%   -1.64%   -2.77%   -8.03%
============================================================
               1-months 3-months  1-year  2-years  3-years
               earlier  earlier  earlier  earlier  earlier
============================================================
Charlotte        -1.02%   -1.59%   -3.72%  -11.52%  -14.62%
Atlanta          -1.04%   -1.74%   -3.09%  -12.13%  -20.46%
Miami            -1.24%   -0.87%   -2.71%  -18.51%  -41.65%
Detroit          -1.27%    0.79%   -3.05%  -21.71%  -36.31%
Boston           -1.31%   -0.98%    0.42%   -2.92%   -8.46%
Chicago          -1.53%   -0.11%   -5.58%  -15.61%  -24.12%
Phoenix          -1.54%   -3.44%   -1.92%  -23.34%  -47.80%
Dallas           -1.59%   -2.98%   -2.59%   -3.74%   -6.32%
Portland         -1.85%   -2.98%   -3.62%  -14.95%  -22.28%
Minneapolis      -2.09%   -1.79%   -1.22%  -12.10%  -24.66%
Cleveland        -3.01%   -3.24%   -1.86%   -5.54%  -11.56%
============================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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