NEW YORK - Home prices across most of the United States have started to rise from the depths of the housing slump, a critical trend that will help stabilize the broader U.S. economy, according to new figures released Tuesday.
Nationally, prices in the second quarter posted their first quarterly increase in three years, according to the widely watched Standard&Poor's/Case-Shiller's U.S. National Home Price Index.
While home prices are still 30 per cent below the mid-2006 peak, their new direction should bring relief to both lenders and homeowners. Falling property values have wiped out US$4 trillion in homeowner equity, and thousands have walked away from homes that are worth far less than their mortgage balance. Lenders have written off billions of dollars in bad loans and to sell foreclosed homes at a fraction of their former cost.
"People are much more inclined to stay where they are and work something out," if they have equity in their homes, said Sanjiv Das, chief executive of Citigroup's mortgage unit.
And as consumers feel more confident in the value of their residences, they will feel safer about spending again. Consumer spending makes up about 70 per cent of U.S. economic activity. In August, consumer confidence rose to the highest level since the recession began, the New York-based Conference Board said Tuesday.
Case-Shiller's monthly index of 20 major cities also rose from May to June, with Dallas and Denver clocking their fourth-straight increase. Only Detroit and Las Vegas saw prices fall in June.
There are concerns, however, that the momentum behind home prices will stall at the end of November with the expiration of a federal tax credit for first-time homebuyers. These newbie buyers are snapping up one in every three homes sold.
First-time buyers get a credit of 10 per cent of the sales price of a home, up to $8,000. The credit phases out for singles earning more than $75,000 and couples earning more than $150,000. The real estate industry is lobbying to have the credit extended.
"If the tax credit is making a significant impact, then housing will take a big hit when it expires," said Pat Newport, an economist at IHS Global Insight.
