Key U.S. housing index shows slight improvement

Home prices in the U.S. fell sharply in February, but for the first time in 16 months the annual pace of deterioration slowed.

The Standard & Poor's/Case-Shiller index measuring home prices across 20 major cities declined 18.6 per cent in February from a year earlier. That marked a slight improvement from January's 19 per cent annual decline, but half of the cities posted deeper declines than in the prior month. On a monthly basis, home prices fell 2.2 per cent from January.

Meanwhile, the Conference Board's measure of consumer confidence surged to 39.2 in April, from 26.9 in March, based on consumers' expectations that the U.S. economy is nearing a bottom. But confidence remains at historically low levels and well below readings associated with strong economic growth.

The latest home-price figures offered an early sign of hope that some of the worst price declines are abating. A separate measure of home prices by the Federal Housing Finance Agency has posted monthly increases for two straight months, though economists doubt that is a sustainable trend. The Case-Shiller measure is expected to fall through much of the year, with smaller declines that would eventually turn into a flattening of home prices.

Prices "are no longer falling off a cliff," said Patrick Newport, an economist at IHS Global Insight. "Instead, they are rolling down a steep hill."

While all cities posted monthly declines, 16 of the 20 declined at a slower pace than they did in January. The Cleveland, Charlotte, N.C., New York and Washington markets showed larger monthly declines in February than they did in the prior month.

David Blitzer, chairman of the Standard & Poor's index committee, said he would need to see "substantial improvement" in data for the active spring home-buying months to gauge whether February's figures were a turning point.

"If this is really the beginning of something and not just a nice quirk, by the time we see the data for April, May and June we should really see it," he said. "If we don't see it, we should probably wait until next year."

Home prices declined 30.7 per cent in the 20-city index from their mid-2006 peak through February, putting them around where they were in the third quarter of 2003.

Some economists expect prices to drop about 10 per cent more before hitting bottom. But many markets saw so much construction during the housing boom that they are left with a glut of supply that is punishing prices.

A few areas are running the risk of declining even below a level that would put them back in line with long-term trends.

"The bigger they climb, the harder they fall," Mr. Blitzer of S&P said.

Seven of the 20 metro areas included in the index posted home-price declines of more than 40 per cent since they peaked.

Home prices in Phoenix have dropped 50.8 per cent from their 2006 peak, putting them up just 12 per cent since 2000. Las Vegas is down 48.4 per cent from its peak, leaving prices there up 21 per cent since the start of the decade. Miami has lost 45.1 per cent since that market peaked, but prices remain 54 per cent higher than their January 2000 level.

(prepared by Sudeep Reddy/Globe & Mail)