Home prices in the US climbed higher than expected in May as the housing market benefited from the last drops of federal stimulus ahead of summer, but tumbling consumer confidence showed growing fears about the economic recovery.
The closely watched S&P/Case-Shiller index showed house prices in the biggest US cities had risen 4.6 per cent in May from the same month a year earlier. That was stronger than economists had predicted and marked the biggest year-on-year increase since 2006.
However a modest monthly gain of 1.3 per cent following April’s meagre rise revealed how flat the market has become since rebounding earlier in the year.
“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,” said David Blitzer, chairman of S&P’s index committee. “Since reaching its recent trough in April 2009, the housing market has really only stabilised at this lower level.”
From April to May, prices rose consistently across the 20 key markets that Case-Shiller tracks. May is traditionally one of the busiest months for buying homes, and only Las Vegas, where prices have fallen by 6.5 per cent in the past year, registered a monthly decline.
Mr Blitzer cautioned that home prices could “bounce along the bottom for the foreseeable future” and that the expiration of stimuli such as the first-time homebuyer tax credit, which affected house purchases that closed before the start of July, could weigh on the sector.
Home sales and housing starts have both been weak in recent months and high rates of foreclosure and distressed sales are depressing prices.
Analysts at High Frequency Economics said home prices would probably fall again this summer as many would-be buyers made their purchases early to take advantage of the $8,000 tax credit. But they note that because price-to-income ratios are at their lowest levels in 35 years, houses are “sensibly priced” and could stage a sluggish recovery in the autumn.
The strongest housing markets in May were Minneapolis, Atlanta, Los Angeles, San Francisco and Boston. Meanwhile, Charlotte, Denver, Detroit and Las Vegas – where prices fell – continued to sputter.
S&P said that Las Vegas had fallen to a new low point for the current cycle, with prices having plunged by 56.4 per cent since peaking in 2006. That erased any gains it had achieved since 2000.
Steve Hawks, a realtor at Platinum Real Estate in Nevada, told the Financial Times that buyers who were shopping for houses now were asking for additional discounts to make up for missing the tax credit. He said the tax credit had created its own housing market bubble that had failed to stimulate real demand.
“Everybody wants that coupon,” Mr Hawks said. “People either want everything $8,000 cheaper or they’re going to wait for the next tax rebate.”
Meanwhile, consumers remain most anxious about the state of the labour market. The Conference Board said on Tuesday that consumer confidence fell from 54.3 in June to 50.4 in July, its lowest level in five months.
Stubbornly high unemployment, which continues to linger around 10 per cent, is casting a “dark cloud” over consumers, according to Lynn Franco, who directs the Conference Board’s consumer research centre. This bodes poorly for retailers and for consumer spending, which accounts for 70 per cent of economic activity in the US.
“Given consumers’ heightened level of anxiety, along with their pessimistic income outlook and lacklustre job growth, retailers are very likely to face a challenging back-to-school season,” Ms Franco said.
More consumers said in July that business conditions were bad and jobs were harder to get while fewer people thought the economy would improve in the next six months.