Home Prices Stabilize as Bargain Hunters Arrive, Says S&P's Weekly Market Analysis

By David Wyss, S&P Chief Economist (top left photo) and Beth Ann Bovino, S&P Senior Economist (top right photo)

For a complete copy of S&P's Weekly Market Analysis or for additional information, please contact the S&P media hotline (+1) 212 438 6667 or media_relations@standardandpoors.com

NEW YORK, NY--The economic data looked much brighter this week, led by the sharp upward revision of second-quarter growth to 3.3% from the 1.9% reported last month.

Other economic releases this week included:
· Home sales improved as bargain hunters came out. Sales of existing homes rose 3.1% in July to 5.0 million units (annual rate), while sales of new homes were up 2.4% to 515,000.Home prices stabilized.

The Standard & Poor’s/Case-Shiller Home Price Index (20 city) fell 15.8% from a year ago in June, about the same as the 15.8% a month earlier, and it is down 18.8% from its July 2006 peak.

The Office of Federal Housing Enterprise Oversight (OFHEO) reported that the national index fell 5.0% from its April 2007 peak. The median existing home price dropped 7.1% from a year ago.

Housing Looks Up

The housing data are looking significantly better. Both new and existing home sales rose in July, by 2.4% and 3.1%, respectively, but both remain sharply lower than a year earlier (down 35.3% and 13.2%, respectively).

The recent data suggest that bargain hunters are entering the market. New home sales rose in the Northeast and West, while existing home sales rose everywhere except the South. The reports make us more hopeful that sales and starts will find a bottom by year end.

Prices will probably drop for longer. The inventory of unsold homes remains high, dropping to a 10.1 months’ supply for new homes but rising to 11.2 months’ for existing homes.

The rise in existing homes was concentrated in condos and could reflect the usual behavior that when owners see a better possibility of a sale, they are more likely to put the house on the market. The overhang of unsold homes will continue to put downward pressure on prices through most of next year.

The Standard & Poor’s/Case-Shiller index of house prices fell 15.9% from a year earlier in June and is now down 18.8% from its July 2006 peak. However, nine of the 20 cities showed increases in June, though all 20 remain below their year-ago levels. The biggest year-over-year declines remain in the Sunbelt, led by Las Vegas (down 28.6%) and Miami (down 28.3%).

The OFHEO index is even more upbeat, showing a quarterly drop of 1.4% (4.8% from a year earlier) in the second quarter. The monthly index was flat in June and down 5.0% from its April 2007 peak.

The difference between the two indices is partially accounted for by the geographical mix but apparently mostly by the very weak performance of low-end housing, which is generally excluded from the conforming loans used in the OFHEO calculation.

A third measure of existing home prices—the Realtor’s median home price—fell 7.1% from a year ago, to $212,400.