The Case-Shiller home price index continued to show improvement in the housing sector as prices seem to have stabilized. The 20-city composite index was expected to show a 11.9% year-over-year decline in August. Instead, prices fell 11.32%, the lowest year-over-year decline since the beginning of 2008.
On a monthly basis, the 20-city composite grew 1.0% after increasing 1.2% in July.
The growth in housing prices seems a little counterintuitive given the economic data. High unemployment and low income growth along with heightened supplies should provide enough downward pressures to overtake the historically low interest rates in determining where prices are headed.
However, price pressures have been alleviated with a one-two punch of the first-time homebuyer tax increase and an artificially lower housing supply caused, ironically, by foreclosures.
The first-time homebuyer tax break has brought in roughly 350,000 new buyers to the market and helped stabilize demand at the low price end of the housing market.
The most recent foreclosures that should be available for purchase have been held out of the supply. Many new foreclosures have been made completely uninhabitable by the previous tenants as they have stripped the home of all copper wiring, appliances, and fixtures. While these homes are technically available, there are no buyers. Further, those foreclosures that have been kept in good condition are being held by banks and slowly released into the market in order to prevent a severe oversaturation of cheap homes.
We expect prices to again dip starting in late November as the first-time homebuyer tax credit expires. There is talk of an extension and there are a few different bills floating around Congress about what to do with it. We expect an extension to occur, but realtors have been lobbying their clients to make their purchases early and avoid possible problems with the extension. By moving up the timetable to purchase a new home, buyers are simply increasing demand today instead of providing a smooth path for new home purchases over the next year. The lack of future demand will put downward pressures on prices.
Out of the 20 cities in the index, 19 cities posted an improvement in the year-over-year decline in prices. Still, compared to last year, the improvement still resulted in net declines. The smallest decline occurred in Dallas (-1.2%) while the largest occurred in Las Vegas (-30.0%).
Fifteen of the 20 cities posted increases in prices over the last month. San Francisco led the price growth with 2.6%.
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