Home Prices Probably Fell, Baring Weak Link in Accelerating U.S. Recovery

Home prices probably dropped in October, a sign housing will remain a weak link as the U.S. recovery accelerates into the new year, economists said before reports this week.

Property values in 20 cities were down 0.2 percent from October 2009, the first year-over-year decline since January, according to the median forecast of 14 economists surveyed by Bloomberg News ahead of a report from S&P/Case-Shiller in two days. Other data the same day may show consumer confidence rose to a seven-month high in December.

A wave of foreclosures waiting to reach the market means home prices will remain under pressure in 2011, representing a risk to household finances. Rising equity values and an improving job market will probably help offset the damage, ensuring that confidence and spending continue to climb.

“The inventory overhang is so big, with foreclosures looming, it’ll take five years to absorb the supply,” said Paul Ballew, chief economist at Nationwide Mutual Insurance Co. in Columbus, Ohio. “The consumer is feeling better although there is still a high level of caution and anxiety.”

Economists surveyed projected the gauge of residential real-estate values declined 0.7 percent in October from the prior month, when it fell 0.8 percent. The index was down 29 percent in September from its July 2006 peak.

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.

Evidence Mounts

Reports earlier this month showed the housing market is stuck near recession levels even as the broader economy is recovering. Housing permits fell in November to the third-lowest level on record, while starts rose for the first time in three months, the Commerce Department reported Dec. 16.

Sales of new and existing homes last month rose less than projected by the median forecast of economists surveyed by Bloomberg, reports from the Commerce Department and the National Association of Realtors showed last week.

Figures on Dec. 30 may show pending sales of previously owned homes rose 2 percent in November from the prior month, according to the survey median. The National Association of Realtors’ gauge measures contract signings, which typically lead closings by one to two months.

The lack of demand has depressed homebuilding stocks this year. The Standard & Poor’s Supercomposite Homebuilding Index, which includes Toll Brothers Inc. and Lennar Corp., is up 2 percent since Dec. 31, while the broader S&P 500 has increased 13 percent.

Stocks Rise

Rising stock prices are helping mend household finances even as home values slide, one reason why sentiment and spending are improving as 2010 comes to a close.

The Conference Board’s confidence index increased to 56.3 this month from 54.1 in November, according to the median estimate of economists surveyed. The index averaged 96.8 during the last economic expansion that ended in December 2007.

The International Council of Shopping Centers on Dec. 14 revised its November-December holiday-season sales forecast up by 0.5 percentage point to a range of 3.5 percent to 4 percent.

Carnival Corp., the world’s biggest cruise-line operator, last week forecast fiscal 2011 earnings will rise as ticket prices strengthen.

“Booking trends have continued to improve for both our North American and European brands, particularly for our peak summer season,” Chief Executive Officer Micky Arison said in a Dec. 21 statement. The Miami-based company’s heaviest booking period, which begins in early January, will be “strong,” he said.

Factory Gains

Manufacturing remains a bright in the recovery. The Institute for Supply Management-Chicago Inc. will report on Dec. 30 that businesses in the U.S. expanded in December for a 15th consecutive month, according to the survey median.

Economists in the past two weeks have boosted projections for fourth-quarter growth, reflecting the pickup in consumer spending and passage of an $858 billion bill extending all Bush- era tax cuts for two years. The legislation also continues expanded unemployment insurance benefits through 2011 and cuts payrolls taxes by 2 percentage points next year.

                        Bloomberg Survey

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Release                     Period        Prior      Median
Indicator                    Date         Value    Forecast
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Case Shiller Monthly MOM%    12/28 Oct.   -0.8%      -0.7%
Case Shiller Monthly YOY%    12/28 Oct.    0.6%      -0.2%
Consumer Conf Index          12/28 Dec.    54.1       56.3
Chicago PM Index             12/30 Dec.    62.5       61.0
Pending Homes MOM%           12/30 Nov.    10.4%      2.0%
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To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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