Home prices drop in Detroit, but up for most major markets

Posted on July 26, 2011

Home prices in major U.S. cities rose for the second straight month in May, propped up by a flurry of spring buyers. But after adjusting for such seasonal factors, prices fell in a majority of markets.

The Standard & Poor’s/Case-Shiller home-price index released today showed that prices rose in 16 of the 20 cities tracked.

Boston posted the biggest monthly increase, followed closely by Minneapolis and Washington. Prices in three metro areas hit the hardest by the housing crisis — Detroit, Las Vegas and Tampa, Fla. — fell to their lowest points since the recession began. Prices in Phoenix were unchanged.

The 20-city rose 1 percent in May from April. The index measures prices compared with those in January 2000. It then provides a three-month average. The May data is the latest available.

The positive data came with a caveat: The figures weren’t adjusted for the buying that normally picks up in spring.

David M. Blitzer, chairman of S&P’s index committee, said the rise in the index was due to a “seasonal period of stronger demand for houses” so the increases are “to be expected.”

“Sustained increases in home prices over several months and better annual results need to be seen before we can confirm a real estate market recovery,” he said. Over the last 12 months, prices have fallen in 19 of the 20 cities tracked.

One bright spot: Even when adjusted for seasonal factors, month-over-month prices rose in some markets that had been pummeled by slumping sales. Those cities are Chicago, Denver, Miami, Minneapolis and Seattle.

Still, prices in 11 markets fell when adjusted for the spring-buying season: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Las Vegas, Los Angeles, Phoenix, Portland, San Diego and Tampa, Fla.

Last year, a tax credit for first-time buyers helped boost prices. They rose nearly 4 percent from April through July before falling more than 7 percent this winter to record lows. Prices in big metro areas sank in March to their lowest levels since 2002.

Housing remains the weakest part of the economy. Sales of previously owned homes fell in June for a third straight month to a seasonally adjusted annual rate of 4.77 million homes. This year’s pace is lagging behind the 4.91 million homes sold last year — the fewest since 1997. In a healthy economy, people buy roughly 6 million homes per year.

Home sales have fallen in four of the past five years, forcing prices down in most areas. Declining home values have made people feel less wealthy, and they are spending less as a result. That affects consumer spending, which accounts for 70 percent of economic activity.

Fewer first-time homebuyers are able to qualify for a loan or have the money required for a down payment. A growing number of contracts are being canceled before sales are final, because unexpectedly low home appraisals are scuttling loans. Few people want to take on the extra debt associated with a home purchase.

High unemployment, millions of foreclosures and tighter credit are likely to keep people from buying homes in the second half of the year, economists say. Even historically low home prices and cheap mortgage rates haven’t brought people back to the market.

Foreclosures and short sales — when a lender agrees to sell for less than what is owed on a mortgage — made up about 30 percent of all home sales last month, up from about 10 percent in past years. And a wave of foreclosures are being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices.

By Derek Kravitz, The Detroit News