Case-Shiller August Home Price Data Disappoints

In another setback for the U.S. housing sector, home prices in a widely cited 20-city index rose a less-than-expected 1.7% in August on a year-over-year basis, according to the S&P/Case-Shiller U.S. National Home Price survey. The weaker growth came as the federal homebuyer tax credit program ended.

On a month-over-month basis, home prices in the 20-city index fell 0.2% in August from July.

Economists surveyed by Bloomberg had expected home prices to fall 0.2% in August from July, and increase 2.2% on a year-over-year basis, after rising 0.6% in July from June, and increasing 3.2% in July, on a year-over-year basis.

Meanwhile, the 10-city index also fell a non-seasonally adjusted 0.1% in August from July, and rose 2.6% on a year-over-year basis, after rising a non-seasonally adjusted 0.8% in July from June, and 4.1% on a year-over-year basis.

Home prices are now down about 28% since peaking in 2006.

Dismal August Data

David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said it was hard if not impossible to put a positive spin on the August housing data.

"A disappointing report. Home prices broadly declined in August. Seventeen of the 20 cities and both Composites saw a weakening in year-over-year figures, as compared to July, indicating that the housing market continues to bounce along the recent lows," Blitzer said, in a statement. "Over the last four months both the 10- and 20-City Composites show slowing growth, after sustaining consistent gains since their April 2009 troughs."

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Year-over-year percentage price changes in major U.S. cities were as follows: New York, unchanged; Chicago, down 0.4%; Boston, down 0.1%; Washington, D.C., unchanged; Atlanta, down 0.7%; Tampa, down 0.4%; Miami, down 0.7%; Dallas, down 1.1%; Denver, down 1.1%; Los Angeles, down 0.9%; San Francisco, down 0.8%; and Seattle, down 1.0%.

"Indeed, the housing market appears to have stabilized at new lows. At this time, it does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers' tax credits," Blitzer added.

Originally greeted by Wall Street with a shrug, S&P/Case-Shiller home price data rose to market-mover status in 2008 as it became clear that the U.S. housing boom during the past decade was a bubble fueled considerably by excesses in the mortgage market. The bursting of that bubble triggered record home mortgage foreclosures and stress in mortgage-backed securities, which led to the financial crisis that the U.S. and world are still trying to end today.

Housing Sector: In Search of Buyers

After a second burst of home purchase activity that paralleled the extension of the homebuyer tax credit, prices fell back, as the Sept. 30 closing deadline for the credit approached. That suggests that there's not enough organic demand to support both sales and prices.

The one ray of light in the report is that the market-price mechanism is taking effect. Amid a large inventory of homes and too few buyers, home sellers are lowering their prices to attract buyers and generate sales.

Still, in a healthy housing market, home prices rise, and for that to occur, household formation has to increase to give the housing market the demand it needs to support rising prices. And the key to household formation is sustained, adequate employment growth of at least 100,000 to 125,000 jobs per month. So far, the economic expansion has not been able to create jobs at that minimum pace.