U.S. housing prices sank to new lows in December, but positive signs are emerging for both the sector and battered shares of home-building companies.
Nineteen of the 20 major cities surveyed by the S&P/Case-Shiller index of home prices saw values decline last year, led by Atlanta where prices tumbled another 13 per cent. The latest data mean that at the end of 2011, average home prices across the United States were back at the levels they were in 2002, down about 34 per cent from their peak in early 2006.
The latest report makes it clear that the slide in U.S. home prices may not be over. However, other signals suggest that building and buying activity is beginning to pick up.
Some home builders have recently reported that orders are rising. Last month, for example, Lennar Corp. said orders jumped 20 per cent from a year earlier in the three months ended Nov. 30. Investors have reacted by pouring billions of dollars into shares of the country's largest home builders, hoping to catch the first leg of a recovery.
The Standard & Poor's 1500 Homebuilding index is up 14 per cent this year, led by KB Home , up 66 per cent, MDC Holdings Inc. up 34 per cent, and PulteGroup Inc., PHM-N up 32 per cent.
The number of housing starts continues to languish below 700,000 a year, the lowest point in more than six decades. "This is a catastrophic level to the building industry," Karl Case, professor of economics emeritus at Wellesley College and co-author of the index, said on a media teleconference Tuesday. But he added that there were some upbeat signs. "Household formation is beginning to come back," he said.
Between March, 2010, and March, 2011, the number of new households created in the United States turned negative for the first time, as hundreds of thousands of people were forced out of homes they couldn't afford to live with family or friends. Last spring, the trend reversed, and by the end of the year annualized household growth had bounced back to one million, which compares with an average of about 1.5 million before the housing collapse, Dr. Case said.
Meanwhile, the National Association of Realtors said sales of existing homes in January rose 4.3 per cent from December, to 4.6 million. It was the third monthly increase in four months, but is still far short of the six million sales a month that economists say is healthy for the market.
Two key factors continue to hurt the U.S. housing market: the volume of foreclosed properties still on the market; and tight lending policies by banks, which are demanding that home buyers have pristine credit ratings. More than one-third of existing-home sales last month involved foreclosed properties. Lenders have foreclosed on about five million houses since 2006 and more than one million more could come to market this year, according to RealtyTrac Inc.
At the same time, applications for mortgages declined by 10 per cent this month from a year earlier, according to the Mortgage Bankers Association, representing one of the lowest readings since the housing crisis began.