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Home prices rise, but gains may soon end

Washington Post Staff Writer
Wednesday, September 1, 2010

Prices for single-family homes in major U.S. cities rose a modest 4.2 percent in June from a year earlier, but economists cautioned that the bounce was likely due to a now-expired home-buyer tax credit and that prices would likely fall, perhaps dramatically, in the coming months.
Of the 20 U.S. metropolitan areas covered by the S&P/Case-Shiller home price index, prices improved in 15 on a year-over-year basis.
San Francisco led those with gains with a 14.3 percent jump, followed by San Diego with 11.2 percent growth, Minneapolis with a 10.7 percent increase. Prices in the Washington area were up a 7.3 percent.
Las Vegas, where foreclosure signs were seen in practically every neighborhood during the worst of the crisis, remained weak, with prices down 5.2 percent. Prices in Charlotte, Seattle, Tampa and Chicago also fell.
The unexpectedly high increase overall was good news - economists surveyed by Bloomberg News had expected a 3.5 percent advance - but worries about the nation's housing sector are far from over.
Since the federal tax credit expired, sales have tumbled despite a large inventory of homes on the market and record-low mortgage rates. Home buyers had to sign contracts by the end of April and close on their purchases by Sept. 30 to be eligible for the credit.
Because the Case-Shiller index measures repeat sales of homes in a rolling three-month average, the June data captured some transactions in April and May that were covered by the tax credit.
"The report shows the ship is dead in the water now that the homebuyer tax credits have expired," Mitchell Hochberg, a principal with Madden Real Estate Ventures, wrote in a research note.
The effect of the end of the government incentive became apparent with reports on July home sales released last week. The National Association of Realtors said that sales of previously owned homes plunged in July to the lowest level in 15 years, while the Commerce Department said that sales of new homes fell to their lowest level since the government started tracking the numbers nearly 40 years ago.

The grim picture of the housing market painted by falling home sales and the optimistic one illustrated by rising home price points to an imbalance in supply and demand that cannot be sustained, analysts said.
Paul Dales, U.S. economist with Capital Economics, said that "now that home sales have fallen through the floor, it is only a matter of time before prices fall back."
Karl Case, an economics professor emeritus at Wellesley College and founding partner of Fiserv Case Shiller Weiss, said during a conference call with analysts Tuesday that despite the recent increase in prices, housing in the longer term has gotten significantly cheaper.
Nationwide, according to the data released Tuesday, prices are 28 percent off their peak in July 2006, but they are up 6 percent from the low in April 2009.
"It's down from the peak an average of something on the order of 30 percent. If you take a 30-year, fixed-interest rate in the low 4s, you take a monthly payment down by roughly half," Case said.
"It's the best affordable housing program we've ever had in this country," Case said.

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