May home prices gain but no sustained recovery

NEW YORK Tue Jul 27, 2010 9:49am EDT

A couple walk into their new house after buying it short sale in Pensacola, Florida, November 11, 2009. REUTERS/Carlos Barria

A couple walk into their new house after buying it short sale in Pensacola, Florida, November 11, 2009.

Credit: Reuters/Carlos Barria

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NEW YORK (Reuters) - Single-family home prices rose more than expected in May, reflecting robust spring sales spurred by homebuyer tax credits, Standard & Poor's/Case Shiller home price indexes showed on Tuesday.

May is a strong seasonal period for home sales, S&P said, and buyers who rushed into the market to sign contracts by the April 30 deadline for up to $8,000 in tax credits have until September 30 to close loans.

Home prices have essentially moved sideways over the past seven months, however, and are likely to bounce around the bottom for the foreseeable future, S&P said.

"There is still a huge amount of supply on the market but sales appear to have improved enough to stabilize prices," said Christopher Low, chief economist at FTN Financial. "It will be a long time before they recover back to where they were before."

The 20-city composite price index rose 0.5 percent on a seasonally adjusted basis in May after an upwardly revised 0.6 percent gain in April, topping the 0.2 percent rise forecast in a Reuters poll.

Prices on an unadjusted basis jumped 1.3 percent in May, after a 0.9 percent April gain and declines in the six prior months. The index increased 4.6 percent in May from a year earlier, S&P said.

"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year still does not indicate that the housing market is in any form of sustained recovery," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

With the recent upturn, prices still are 29.1 percent lower than the peak four years ago. A record inventory of foreclosed properties is widely seen preventing much of a price upturn in the near term.

The payback from the federal tax incentives went beyond most expectations and some reports have started to show some stabilization from historic lows.

Sales of new homes in June surged 23.6 percent, but remained at the second-lowest level since the Commerce Department started keeping records in 1963. High unemployment and wage cuts are keeping many potential buyers at bay.

The government is expected to report on Friday that gross domestic product growth slowed to a 2.5 percent annual rate in the second quarter from a 2.7 percent pace in the first quarter.

(Additional reporting by Burton Frierson; Editing by James Dalgleish)

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Comments (2)
mgwarren99 wrote:
What makes people think that the housing market will ever have a “recovery”? Has anyone stopped to think that maybe the resason housing prices have dropped so substantially is because they were inflated by cheap money from the feds, implicit backing of bad debt and affordable housing mandates? Housing isn’t “coming back” no matter how much they do to try and reinflate the bubble. It’s probably priced right now.

Jul 27, 2010 10:55am EDT  --  Report as abuse wrote:

Bet against the American economic machine at your own peril. We have the greatest society, the best political, social and economic system, in the history of mankind. The housing market will most certainly recover as soon as the job market recovers. And the job market will recover much faster than everyone currently thinks. Our economy is getting ready to explode like the big bang, and I mean in a good way. Companies and individuals are paying off debt and accumulating cash at an astounding pace. As soon as the new rules that result from all of this “change” that the American people voted for are clear, we will start investing again. And when we do, the world will again be amazed at how efficient and effective our economic system is at putting capital to work in the right way.

Jul 27, 2010 1:40pm EDT  --  Report as abuse
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