U.S. home prices see first rise in three years

NEW YORK Tue Jul 28, 2009 12:37pm EDT

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NEW YORK (Reuters) - U.S. single-family home prices rose in May from April, the first monthly increase in nearly three years, suggesting prices may be stabilizing, according to Standard & Poor's/Case Shiller home price indexes on Tuesday.

The annual rate of decline for the 10- and 20-city indexes improved for the fourth straight month, though prices have still tumbled by more than 32 percent from the peaks in the second quarter of 2006.

The index of 20 metropolitan areas rose 0.5 percent in May from April, after a 0.6 percent decline the month before, in contrast with the 0.5 percent drop forecast by economists in a Reuters poll.

The May monthly rise resulted in an annual downturn of 17.1 percent, although this was the fourth straight month that the rate of decline slowed. This follows a 16-month string of record annual declines starting in October 2007 and ending in January.

S&P said its index of 10 metropolitan areas rose 0.4 percent in May after a 0.7 percent drop in April, for an 16.8 percent year-over-year drop.

"To put it in perspective, this is the first time we have seen broad increases in home prices in 34 months," David M. Blitzer, chairman of the index committee at S&P, said in a statement. "This could be an indication that home price declines are finally stabilizing".

The 10 and 20-city indexes reported positive returns for the first time since summer of 2006.

"With the numbers we've seen on home sales starting to firm and now home prices stabilizing, we're getting more evidence that the housing market may have hit bottom," said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis, Missouri.

Sales of new homes jumped 11 percent in June, the biggest monthly gain in eight years, the Commerce Department said on Monday, in another sign that worst housing market since the Great Depression may be gaining some footing.

Existing home sales rose for the third straight month in June, the National Association of Realtors said last week, surpassing forecasts and feeding optimism about the beleaguered housing sector.

Still, caution is warranted as long as the U.S. unemployment rate keeps rising, economists advised. That rate is at its highest in nearly 26 years and is headed to double-digit levels.

Signs of stability are far more likely than prospects for near-term recovery in housing, many economists agree.

For a rebound, consumer confidence needs to improve, foreclosures need to start falling from their record pace and potential buyers need to have a sense that it won't be even cheaper to purchase if they keep waiting.

"While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis home prices are still down about 17 percent on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation." Blitzer added.

S&P said the 10-city index has fallen 33.3 percent and the 20-city index has slumped 32.3 percent from their 2006 peaks.

(Additional reporting by Ellen Freilich; Editing by James Dalgleish)