U.S house prices showing signs of solidity

The U.S. housing market is showing further signs of stabilization, thanks in large part to mortgage rates that are close to record lows and a government tax credit for first-time home buyers.

A measure of home prices in 20 major cities rose for a fifth successive month in October, according to data released yesterday in New York. Adjusting for seasonal variation, the S&P/Case-Shiller index gained 0.4 per cent from the month before, while coming in 7.3 per cent lower than in October, 2008, roughly in line with economists' forecasts and marking the smallest year-over-year drop in two years.

After a sharp turnaround in prices during the spring and summer, the latest numbers "should be described as flat," David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. While the U.S. Federal Reserve's rock-bottom borrowing costs have spurred strong sales, much like in Canada, Mr. Blitzer cautioned that home construction is still tepid and, perhaps most important, programs aimed at boosting the housing sector – such as the tax break for first-time buyers – will run out in the first half of the year.

Prices fell from a year earlier in all 20 cities for the 19th month in a row, but in each case the drop was smaller than in September. Even as some cities such as Las Vegas and Phoenix continue to post eye-popping year-over-year drops, Dallas and Denver are approaching the point where prices may start rising, posting annual drops of 0.6 and 0.1 per cent, respectively.

However, with foreclosures rising to another record this year and U.S. unemployment close to 10 per cent, it may be too early to declare the downturn in U.S. housing.

"There are plenty of headwinds out there," Karl Case, an economist at Wellesley College in Massachusetts who created the index, told Bloomberg Radio. Many adjustable-rate mortgages are on track to be reset higher, "clearly a huge problem and the pipeline is not clearing," Mr. Case reportedly said.

Nonetheless, Millan Mulraine of TD Securities said in a note that because the overall recovery south of the border is "likely to gain further traction," the pickup in housing will be "sustained."

(prepared by Jeremy Torobin/Globe & Mail)



Housing starts (and sputters)

In some U.S. markets, home prices have stopped falling and a few are even showing brisk gains. But the recovery is not nationwide yet.

SAN FRANCISCO, CALIFORNIA

The fog lifts

1.7

Bay Area real-estate prices are bouncing back. In October, the biggest gains of 20 U.S. cities came in San Francisco, where prices were up 1.7 per cent from September. They’ve been rising since the spring.

LAS VEGAS, NEVADA

A lost decade

-1.2

Home prices in Las Vegas were down for a 38th straight month. According to S&P’s Case-Shiller index, prices in Las Vegas were 27 per cent lower this October than last, and are now only slightly higher than they were in early 2000.

PHOENIX, ARIZONA

Hope in the Sun Belt

1.0

Phoenix shared the cellar with Las Vegas for several months, posting eye-popping declines and showing little sign of hope for a turnaround. But while prices in Phoenix were down 18 per cent from October 2008,

the city now boasts five straight monthly gains, and was one of four markets to gain at least 1 per cent from September.

TAMPA, FLORIDA

No sign of a bottom

-1.2

Florida has been one of the hardest-hit big U.S. states throughout the housing crisis. Prices in Tampa were down

15 per cent from a year earlier – the third-biggest drop in the index, behind Las Vegas and Phoenix. And no other city had as large a monthly drop in October.

* Change in prices from September to October, seasonally adjusted

TEXT BY JEREMY TOROBIN

GRAPHIC BY TRISH MCALASTER / THE GLOBE AND MAIL

SOURCE: S&P/CASE SHILLER INDEX