Pace of Home Price Declines Could Be Slowing

Two key housing reports were issued today.

By + More

Two key housing reports were issued today. Let's start with the S&P/Case-Shiller Home Price Indices:

The decline in the S&P/Case-Shiller U.S. National Home Price Index—which covers all nine U.S. census divisions—remained in double digits, recording a record 15.4% decline in the second quarter of 2008 versus the second quarter of 2007. This is larger than the decline of 14.2% reported in the first quarter of the year. The 10-City and 20-City Composites also set new records, with annual declines of 17.0% and 15.9%, respectively. However, it should be noted that the acceleration in decline was only moderate in June. The May numbers reported annual declines of 16.9% and 15.8%, respectively.

"While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level" says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "Depending on where you focus on the details of the report, you can see some different stories on where home prices are headed. Record year-over-year declines were reported in both the 10-City and 20-City Composites in June; however, they are very close to the values reported for May. The rate of home price decline may be slowing. For the month, the 10-City Composite was down 0.6% and the 20-City composite was down 0.5%."

Here's what economists at Goldman Sachs had to say:

House prices continue to fall, but the pace of decline appears to be slowing. There had been [hints] in this slowing in the Case-Shiller Index for the past couple of months, but the data today confirms it. Both the 20-city index for June and the national index for Q2 came in better than consensus...This is not to say the housing market is healthy. We expect house prices to continue falling throughout this year and into next year, but it is now starting to look as if the fastest pace of declines may be over. However, once house prices do stop falling, they are unlikely to recover quickly.

At the same time, the government released its new home sales report:

Sales of new one-family houses in July 2008 were at a seasonally adjusted annual rate of 515,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4 percent (±11.6%)* above the revised June rate of 503,000, but is 35.3 percent (±7.3%) below the July 2007 estimate of 796,000.

From Bloomberg:

Lower prices have made homes more affordable for Americans still able to obtain a mortgage, stemming the slide in demand and making it more likely the property glut will clear. A more stable housing market would eliminate one of the biggest risks to the economy even as the credit crisis and job losses threaten growth.

"We're hopefully getting in the vicinity of a bottom, David Resler, chief U.S. economist at Nomura Securities International Inc. in New York, said before the report. Still, "we're a long way from a recovery. We'll see activity at low levels for a while.

Economists forecast new-home sales would drop to a 525,000 annual pace from an originally reported 530,000 rate the prior month, according to the median estimate in a Bloomberg survey of 76 economists. Forecasts ranged from 493,000 to 570,000.

The median price of a new home decreased 6.3 percent to $230,700, from $246,200 a year earlier.