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U.S. resale home prices fell again in March, according to S&P Case-Shiller

05/31/2011 by Alex Carrick, RCD Canadian Chief Economist

News on existing home prices in the U.S. was disappointing again in March, according to the S&P Case-Shiller report. The 10-city composite index was -0.6% month to month and -2.9% year over year. The comparable numbers for the 20-city composite index were -0.8% and -3.6%.

In 19 of the 20 major cities covered in the report, existing home prices were down on a year-over-year basis. The five most dramatic declines occurred in Minneapolis (-10.0%), Phoenix (-8.4%), Chicago and Portland (both -7.6%) and Seattle (-7.5%).

The only city with an increase in year-over-year resale prices was Washington, D.C., at +4.3%.

Given the current political climate, that may not sit well with a lot of people. Washington is a government town. Many will feel the city is insulated from the problems of the rest of America.

It’s a matter of concern if Washington homeowners are experiencing greater prosperity and home price stability than elsewhere in the country. This could easily lead to speculation about complacency on the part of legislators with respect to “real world” real estate conditions.

Washington was also one of only two cities with a month-to-month price increase (+1.1%) in March. Seattle was the other (+0.1%). In February, Detroit had been the only city with a month-to-month rise in existing home prices, +0.8%, but in March there was a drop again, -2.0%.  

Nevertheless, there are encouraging signs that improvement in the auto sector is taking firmer hold in Motor City. The former Big Three carmakers are generally experiencing better sales gains than their foreign rivals.

The overall index level of U.S. existing home prices now stands lower than at any time since the onset of the recession in early 2008. The previous low point occurred in early 2009. From mid-2009 through mid-2010, demand and prices showed some recovery aided by a sizable first-time home-purchase tax credit.

Upon its expiry, the market deteriorated again. Millions of U.S. homes have been seized in foreclosure proceedings over the past couple of years and the rate of home ownership has fallen to its lowest level on record, according to the Census Bureau. 

Twelve of the cities in S&P Case-Shiller’s 20-city composite index have fallen to new lows since the start of the recession – Atlanta, Charlotte, Chicago, Cleveland, Detroit, Las Vegas, Miami, Minneapolis, New York, Phoenix, Portland and Tampa.

Nation-wide, U.S. existing home prices have fallen back to their mid-2002 levels. They are down by more than one third versus their peak in early 2006.  

The situation with respect to U.S. home prices isn’t doing anything positive for consumer confidence either. The Conference Board’s widely-quoted measure of confidence dropped to an index value of 60.8 in May from 66.0 in April. The index has a base value of 100.0 set in 1985.

The highest level the Conference Board’s reading has reached since the end of the recession in the overall economy was 70.4 in February of this year. To put matters in perspective, however, U.S. consumer confidence sank to a low of only 25.3 in February 2009.

Besides falling home prices, U.S. householders have quite a number of issues to worry about. Labor markets aren’t improving as quickly as one would wish. Gasoline is priced at nearly US $4.00 per gallon and that’s taking a big bite out of everyone’s wallets. And the primary option to home ownership is becoming more expensive as well.

There is one demographic for which labor markets are on the upswing, the hiring of younger people with high-tech skills. These individuals are also accounting for some of the increase in rental apartment/condo-unit demand. Rental unit rates are presently increasing somewhere between 2.5% and 5.0% per year nationally.  

Nearly-full rental condo/apartment complexes are becoming more common and prices are also increasing for such amenities as parking. By way of contrast, the U.S. core inflation rate (which omits energy and food) was +1.3% in April. The all-items year-over-year change was +3.2%.

A rapid increase in rental rates is one of the items economists worry about when considering whether or not too-rapid inflation is becoming embedded. The spare capacity on the rental side of the housing market – caused by demand from young people and augmented by those forced out of home ownership - is much smaller than on the owner-occupied side.

In Canada, a home renovation tax credit expired in early 2010. Homeowners still plan to spend about the same amount on projects this year as last year, $46 billion, according to a survey carried out by BMO. Renovation activity has been helped by a still healthy resale market in Canada. Total spending on residential construction in 2011 will be about $95 billion, split about half between new structures and remodeling/renovation work.

Improvements in lifestyle and a desire to add value to their homes were two primary reasons given by Canadian homeowners for undertaking renovation spending, according to the bank’s survey. In many cases, homeowners are spurred on to actually initiate the work when they see friends and neighbours undertaking projects. Also, the abundance of television programs featuring home renovation projects has been a prod in many cases.


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