September 25, 2012 / 3:02 PM / 6 years ago

Home prices rise for sixth month, a sign of recovery

NEW YORK (Reuters) - U.S. home prices rose for a sixth straight month in July in the latest sign of a sustainable housing market recovery, while a jump in consumer confidence this month offered a harbinger that Americans are ready to loosen their spending.

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012. President Barack Obama said on Monday the U.S. housing market was "beginning to tick up" but was still not where it needs to be. REUTERS/Jonathan Ernst

Six years after its collapse, economists believe the housing market has turned a corner.

Two separate reports on Tuesday showed that home prices rose in July, though the gains were not as strong as the previous month. That follows recent data that home resales and groundbreaking on new properties rose in August, while business sentiment among homebuilders hit a more than six-year high this month.

The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.4 percent in July on a seasonally adjusted basis. Economists had expected a gain of 0.9 percent, which would have matched June’s advance. Case Shiller is one of the most closely watched barometers of the U.S. housing market.

On a non-adjusted basis, prices were up 1.6 percent.

The gain in house prices supports the view that “even with the broader economic recovery struggling to gain traction, the housing recovery is sustainable,” wrote Paul Diggle, property economist at Capital Economics.

Housing has regained its footing at the same time as the broader economic recovery has lost traction. The economy grew at a 1.7 percent annual rate in the second quarter, and economists say it is not likely to fare much better in the current quarter.

Larry Kantor, head of research at Barclays Capital, said housing has the potential to give a stronger boost to the U.S. economy in 2013 as steadily rising prices reassure Americans that the housing crash is past.

“We’d not previously had a decline in house prices since the 1940s so we don’t know for sure, but six months of price rises may deter people from renting,” he said.

Earlier this month the Federal Reserve unleashed an aggressive stimulus program in which it will buy $40 billion in mortgage-backed securities a month until the job market sees sustained improvement.

The Fed’s announcement pushed mortgage interest rates to new record lows last week, according to data from mortgage finance provider Freddie Mac.

Still, housing faces a number of hurdles, including tight lending standards for mortgages, a large number of underwater homeowners, and a large number of foreclosures still in the pipeline.


U.S. stocks were modestly higher in the early afternoon, with housing shares up 0.4 percent. The housing index is up more than 14 percent for September so far.

The day’s data helped drive down prices of Treasuries, a traditional haven from risk, as it reduced worries about slowing global growth.

Also on Tuesday, consumer confidence climbed in September to the highest level in seven months as Americans were more optimistic about the job market and income prospects.

The Conference Board, an industry group, said its index of consumer attitudes rose to a reading of 70.3 from an upwardly revised 61.3 in August. It was the highest level since February and topped economists’ expectations for a reading of 63, according to a Reuters poll.

With consumer spending accounting for two-thirds of economic activity, analysts are keen to see the upbeat attitudes translate into more buying.

“It does bode well for spending down the road,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Cheerier consumers, combined with the recent rise in equities markets, could help President Barack Obama’s reelection chances, with campaigning on both sides focusing on the health of the economy.

The housing market is considered a key sector of the economy.

“Housing is out of the woods and it should be making a contribution to the overall economy going forward,” David Blitzer, chairman of the index committee at Standard & Poor’s, told Reuters Insider.

Compared with a year ago, prices in the 20 cities were up 1.2 percent, the biggest gain since August 2010, according to the S&P/Case Shiller index.

Prices were lower than a year ago in only four cities, with Atlanta faring the worst, down nearly 10 percent. Hard-hit Phoenix continued to rebound, with a gain of 16.6 percent.

Separately, the U.S. Federal Housing Finance Agency home price index showed prices rose 0.2 percent in July compared with a 0.6 percent rise in June.

Analysts cautioned that home prices could decelerate somewhat through the rest of the year as the traditional summertime buying boost wears off.

Economists expect prices will rise 1 percent this year and 2.5 percent next year, according to a Reuters poll done at the beginning of September before the Fed announced its latest quantitative easing program.

In the consumer confidence data, the Conference Board’s expectations index climbed to 83.7 from 71.1, while the present situation index gained to 50.2 from 46.5.

Consumers were more optimistic on both the current and short-term outlook for the labor market and had a more favorable view on their income prospects in the next six months.

Consumers also felt better about price increases with expectations for inflation in the coming 12 months down to 5.8 percent from 6 percent.

Additional reporting by Ryan Vlastelica and Atossa Abrahamian; Editing by Leslie Adler

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