By S. MITRA KALITA, WSJ AUGUST 31, 2011
U.S. home prices increased in the second quarter but fell compared with the same period last year, painting a mixed picture of the real-estate market amid plummeting consumer confidence.
Housing data from April to June showed a move sideways in housing prices, but in the time since that data was collected, market gyrations, the S&P downgrade and damage from Hurricane Irene mean those numbers were a last hurrah for the struggling housing market, Nick Timiraos reports on Markets Hub. (Photo: Getty Images.)
The S&P/Case-Shiller Home Price Index, released Tuesday, rose 3.6% for the quarter ended in June, but fell 5.9% annually, sending prices back to pre-boom 2003 levels. Consumer confidence, meanwhile, sank to its lowest level in two years, according to the Conference Board, a private research group.
Confidence fell to a reading of 44.5 in August from 59.2 in July. That is its lowest level since April 2009 and much worse than most economists had expected.
"Coming in the wake of a rancorous debate over the debt ceiling and the downgrade of U.S. debt, such a drop in confidence could hardly be much of a surprise," Nomura's chief U.S. economist David Resler wrote in a note to clients. "Nonetheless, declines in confidence run the risk of becoming self-fulfilling if they affect buying intentions."
The latest indicators also don't account for Hurricane Irene, which caused flooding and other damage in the East over the weekend. Total Mortgage, a lender in Milford, Conn., has begun asking borrowers in affected areas for an affidavit pledging that their home values and conditions remain the same as the initial appraisal.
Homes in areas seeking funds from the Federal Emergency Management Agency likely will have to undergo an additional inspection before closing, said Total Mortgage President John Walsh. While the numbers of affected buyers and sellers might be small, he says an already-shaky housing market can't handle much more.
"Any impact is a large impact," Mr. Walsh said. "We have a situation where people are going to be focusing on repairing their homes, and that might make people nervous about buying a home along the coast."
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The housing gauge showed prices generally rose in its 20-city index. Minneapolis and Chicago led gains, both at 3.2%, while prices in Portland, Ore., remained flat. But across the board, prices were down from a year ago. Minneapolis posted the steepest annual decline, at 10.9%.
Still, the price increases remain good news in an industry that has had little to cheer. "The pace of sales is better than a year ago," said Vance Shutes, an associate broker for Real Estate One's Ann Arbor, Mich., office. "In our northern suburbs, where the automotive companies were just decimated, those markets are now rebounding strongly as the auto companies have started bringing people back after five years of shedding them."
Indeed, one bright spot of the consumer-confidence report was that the percentage of people who intend to buy a car or a major appliance edged higher. Yet far fewer respondents said they plan to buy a house in the next six months.
One economist, citing uncertainty in the labor and stock markets, called Tuesday's housing data, which reflect prices only until June, the "last hurrah" before prices begin to slide. The National Association of Realtors reported this week that pending home sales—which measure the number of contracts to buy previously owned homes—fell 1.3% after two months of gains.
"The real concern is what's going to happen in July and August," said Stan Humphries, chief economist at real-estate firm Zillow Inc. "Consumers have been getting a lot of bad data points about the economy and that is going to get translated into the housing market."
Write to S. Mitra Kalita at mitra.kalita@wsj.com
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