Home Prices Rose Better than Forecast 0.6% in July

The U.S. housing sector's long, slow journey to health continued in midsummer, as home prices rose a better than expected 0.6% in July from June, on a non-seasonally-adjusted basis, according to the S&P/Case-Shiller U.S. National Home Price survey. Home prices in the 20-city index also rose a non-seasonally adjusted 3.2% on a year-over-year basis.

Economists surveyed by Bloomberg had expected home prices to fall 0.1% in July from June, and rise 3.1% in July, on a year-over-year basis, after an 0.3% June from May increase, and a 4.2% increase in June, on a year-over-year basis.

Case-Shiller's 10-city index also rose a non-seasonally adjusted 0.8% in July from June, and 4.1% on a year-over-year basis, after rising a non-seasonally adjusted 1.0% in June from May, and 5.2% on a year-over-year basis.

Stabilizing Home Prices Seen

David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said there are signs of improvement in the U.S. housing sector, but one should not expect large median home price gains in the months ahead.

"Home prices crept forward in July. Ten of the 20 cities saw year-over-year gains and only one -- Las Vegas [down 4.9% compared to July 2009 ] -- made a new bottom, as the impact of the first time home buyer program continued to fade away," Blitzer said, in a statement. "The year-over-year growth rates for 16 of the cities and both Composites weakened in July compared to June. While we could still see some residual support from the home buyers' tax credit, which covers purchases closing through September 30th, anyone looking for home prices to return to the lofty 2005-2006 might be disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely."

Year-over-year percentage price changes in major U.S. cities were as follows: New York, up 0.6%; Chicago, down 1.7%; Boston, up 2.8%; Washington, D.C., up 6.5%; Atlanta, up 0.2%; Tampa, down 3.2%; Miami, up 0.4%; Dallas, down 0.4%; Denver, down 0.1%; Los Angeles, up 7.5%; San Francisco, up 11.2%; and Seattle, down 1.6%.

Originally greeted by Wall Street with a shrug, the S&P/Case-Shiller home price reports rose to market-mover status in 2008 as it became clear that the U.S. housing boom of the past decade was, in fact, a bubble fueled considerably by mortgage market excesses.

Is the Glass Half-Full or Half-Empty?

Put July's home price report in the "to be continued" category, as it contained both strengths and weaknesses.

On the positive side, the 0.6% one-month gain in July for the 20-city index was substantially better than the 0.1% dip that had been forecast. On the downside, over-over-year gains for the 20-city index slowed to a 3.2% pace in July from a 4.2% pace in June, about what had been expected.

An economic bull would see see further indications of home price stabilization in the one-month data, while an economic bear would perceive a danger sign in the slowing rate of increase in the year-over-year price data.

As Blitzer underscored, given that the July data were still skewed by the lingering effects of the federal government's home buyers tax credit, economists and Realtors will likely need two to three more months of data before they can gauge the true strength of the housing sector.