Higher prices in April, but can it last?

By Allison Halliday | June 29, 2011

Home prices in the US rose by 0.7% in April, up from March, according to the latest Standard & Poor/Case-Shiller price index, but even though this is great news there are doubts about its sustainability.

Home prices rose slightly last month, according to the Case Shiller Index. Image courtesy of Chattanooga Real Estate Blog

It is the first time in eight months that prices have increased, and S&P feels it may be due to a seasonal uplift in sales rather than a change in market conditions. The current statistics for the housing market still paint a very mixed picture, as single family housing starts rose in May, but sales of existing family homes decreased.

Dave Blitzer, chairman of S&P’s index committee says ”It is much too early to tell if this is a turning point or simply due to some warmer weather.” According to the committee, several more months of sustained price rises are needed to call it a real recovery.
Although prices rose in April, year on year they were down by 4%, which is the largest price fall in 10 months. The only metropolitan area to register a substantial price rise year on year was Washington DC.

Sustained price rises aren't expected for some time yet, say experts. Image courtesy of Daily Mail

Overall, IHS Global Insight predicts that prices will fall by another 5% this year. Zillow.com also expects prices to drop a little further before the market finally bottoms out in 2012. The chief economist of Zillow, Stan Humphries says “Things are moving in the right direction,” but he predicts it will be several more years before prices begin to increase once more. He then expects to see rises in the historically normal range of between 2% and 4%.

Since the global economic crisis, prices in the US have dropped by an average of 33%, with lower priced homes being more susceptible to sustained losses. Prices for lower priced homes have fallen by 45% compared to 25% for more expensive properties. It’s expected that this trend will continue due to tighter lending constraints affecting first time buyers.