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Home Prices Rise to Kick Off Spring Selling Season

According to the Standard & Poor's / Case-Shiller home price index, home values rose across the US for the first time in eight months, as the typically active spring selling season kicked in to full swing. The index showed increase in 13 of the 20 cities it tracks, led by Washington, DC, San Francisco, Atlanta and Seattle. Six of the cities in the index, however, saw their lowest prices in almost four years. Those cities are Chicago, Detroit, Miami, Las Vegas, Tampa Bay and Charlotte, North Carolina.

Since the housing market collapsed, prices have fallen further than they di during the Great Depression of the 1930s. The S&P/Case-Shiller index, which covers about half of all US households that reside in the 20 cities it tracks, rose 0.7 percent in April, the first increase in the measure since last July. When adjusted for seasonal factors, however, the index showed that prices actually fell 0.1 percent. The index is based on an average of prices over three months, so April's report also includes data from February and March.

Analysts caution that April's figure was boosted not only by the beginning of the spring selling season, but also by an industry-wide delay in processing foreclosures. Foreclosed homes typically sell at about a 20 percent discount to traditional homes, and more foreclosures leads to lower prices overall. But as recent investigations into foreclosure procedures at major lenders have gone on, many of these lenders have slowed down their foreclosure process significantly, taking extra care to ensure that seizures are processed legally.

Even though prices rose modestly in April, housing remains by far the worst part of the US economy. Sales of existing US homes fell to an annual pace of 4.81 million in May, significantly lower then the 6 million pace economists view as healthy. Since the housing bubble burst in 2006, houses have fallen in four of the five ensuing years. New home sales have been just as tepid, falling to a seasonally adjusted annual rate of 319,000 in May, less than half the rate of 700,000 which economists view as a healthy pace. Since June 2009, when the recession was declared over, new home sales have fallen 18 percent, and 2010 was the worst year ever for new home sales on records dating back some 50 years.

Home sales have been held back by the uncertainty surrounding the nation's job market, tightened lending criteria, and larger required down payments. There are a large number of Americans able to afford a home who are waiting for fear of further price declines, as well. The worst performing sector of the US economy, the housing market has hurt the broader economy, as well. Falling prices have made it harder for people to sell their homes in order to relocate for new jobs, and have had an impact on the net worth of many lower and middle class homeowners. This has had an impact on consumer spending, a very vital part of the American economy, accounting for about 70 percent.

Larger down payment requirements, tougher lending standards and high unemployment are preventing people from buying homes. Many people who can afford to buy are holding off, worried that prices have yet to bottom out. The depressed housing market has also weighed on the broader economy. Declining home prices have kept people from selling their houses and moving to find jobs in growing areas. They have also made people feel less wealthy. That has reduced consumer spending, which drives about 70 percent of economic activity.

July 14, 2011

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