Home Prices Gain 0.3 Percent in July as Tax Credit Fuels Demand

Sept. 22 (Bloomberg) -- U.S. home prices rose 0.3 percent in July from the previous month, the third straight monthly gain, as the tax credit for first-time buyers bolstered demand and helped stabilize the housing market.

The U.S. house price index fell 4.2 percent for the 12 months ended in July, the Federal Housing Finance Agency in Washington said today. July’s increase was lower than the 0.5 percent gain forecast by 12 analysts in a Bloomberg survey.

Demand is returning to the U.S. housing market after a three-year slump slashed values 28 percent nationwide and led to record foreclosures. Lower home prices and government stimulus efforts boosted sales of existing homes 7.2 percent in July from the prior month to the highest level in almost two years, the National Association of Realtors said in an Aug. 21 report. Home-loan rates last week also fell to the lowest since May.

“Mortgage rates have come back down and demand for homes remains high,” said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts. “There are a lot of positives in housing right now.”

U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are considering whether to end support for the housing market that has been the source of the global financial crisis.

‘Encouraging’ Recovery Signs

Treasury Secretary Timothy Geithner on Sept. 17 called signs of stabilization in the housing market “very encouraging” and said the Obama administration is studying whether to let the tax credit expire at the end of November.

Home building companies are seeing signs that demand is improving. Lennar Corp., the third-largest U.S. builder, said yesterday it has started buying finished home sites in anticipation that buyers will return.

The Standard & Poor’s Supercomposite Home building Index of 12 companies has rallied 38 percent this year through yesterday on the prospect of a recovering market.

U.S. home prices probably will fall 13 percent this year to a median of $172,600, larger than the 9.5 percent decline in 2008, according to a National Association of Realtors’ forecast. Home resales probably will rise 1.1 percent to 4.97 million after a 13 percent drop last year, the group said.

Record Price Declines

The U.S. median home price tumbled 28 percent over three years to $164,800 in January, the month before Congress passed the American Recovery and Reinvestment Act of 2009 granting the tax credit for first-time buyers, according NAR. It had reached a record high of $230,300 in July 2006. January’s median home price was the lowest in more than seven years.

Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit. First-time buyers have accounted for 43 percent of home sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.