Home Prices in 20 U.S. Cities Fell Less Than Forecast

Sept. 29 (Bloomberg) -- Home values in 20 U.S. metropolitan areas declined less than forecast in the year ended in July, a sign the housing slump that led to the worst recession in seven decades is abating.

The S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months, the group said today in New York. Adjusted for seasonal variations, the gauge rose 1.2 percent from the prior month, the biggest gain since October 2005.

Foreclosure-driven price declines, low borrowing costs and government tax credits for first-time buyers have lifted home sales for much of this year, helping to slow the decline in prices. Stability in real-estate values and rising stock prices may help set the stage for a recovery in the consumer spending that accounts for two thirds of the economy.

“The worst has passed,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets.”

Stock index futures rose after the report and Treasury securities extended losses. The contract on the Standard & Poor’s 500 index was up 0.4 percent to 1,062.8 at 9:23 a.m. in New York. The yield on the benchmark 10-year Treasury note rose to 3.32 percent from 3.28 percent late yesterday.

Better Than Forecast

The index was forecast to fall 14.2 percent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 percent to 15 percent. The measure fell 15.4 percent in the 12 months ended in June.

Year-over-year records began in 2001 and the gauge has fallen every month since January 2007.

All 20 cities in the S&P/Case-Shiller index showed a smaller year-over-year price decrease in July than in the prior month. Las Vegas showed the biggest plunge at 31 percent, followed by Phoenix at 29 percent. Cleveland showed the smallest decline at 1.3 percent.

Compared with the prior month, 17 of the 20 areas covered showed an increase, led by a 3.1 percent jump in Minneapolis and a 2.9 percent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 percent.

More Sales

Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.

Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.

Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” while noting that the economy and housing had strengthened. They also said they would slow the central bank’s purchases of mortgage debt and extend the program through the first quarter of 2010 in order to keep lending rates low.

Lennar Corp., the third-largest U.S. homebuilder, is among companies that see demand improving, even as losses mount. The Miami-based company said last week it expects to turn a profit in fiscal 2010.

‘Time to Buy’

“In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize,” Stuart Miller, Lennar’s chief executive officer, said on a Sept. 21 conference call. “The sense that now is the time to buy is starting to gain momentum.”

Mounting foreclosures present a risk of renewed price declines as more homes are thrown onto the market. Foreclosure filings in August exceeded 300,000 for the sixth straight month, according to data from RealtyTrac Inc. A total of 358,471 properties received a default or auction notice or were seized last month, 18 percent more than a year earlier.

KB Home, the Los Angeles-based homebuilder that sells to first-time buyers, on Sept. 25 reported a third-quarter loss exceeding analysts’ estimates and said a housing recovery isn’t imminent.

“The precise timing of a housing recovery remains uncertain,” Chief Executive Officer Jeffrey Mezger said on a conference call with analysts.