Harvey Realty, Inc.

Although still in negative territory, the annual rate of decline of the 10-City and 20-City Composites in the S&P/Case-Shiller Home Price Indices improved for the fourth consecutive month in 2009, according to a report released yesterday by Standard & Poor’s. The 10-City and 20-City Composites declined 16.8 percent and 17.1 percent, respectively, in May compared with the same month last year, compared with annual declines of 18 percent and 18.1 percent, respectively, in April. After 16 consecutive months of record annual declines, beginning in October 2007 and ending in January 2009, the indices have now shown four consecutive months of improvement in annual returns, according to the report.

“The pace of descent in home price values appears to be slowing” said David M. Blitzer, chairman of the Index Committee at Standard & Poor’s. “There is a clear inflection point in the year-over-year data, due to four consecutive months of improved rates of return, after the steep decline that began in the fall of 2005. In addition to the 10-City and 20-City Composites, 17 of the 20 metro areas also saw improvement in their annual returns compared to those of April. Looking at the monthly data, 13 of the 20 metro areas reported positive returns; and the 10-City and 20-City Composites reported positive returns for the first time since the summer of 2006. To put it in perspective, these are the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing.

“While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis home prices are still down about 17 percent on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation,” said Blitzer.

According to recent reports and forecasts by housing analysts, the three-year descent in home prices appears to be at an end. Eight cities, including San Francisco, showed price increases in May, up from four in April, and one in March, according to Standard and Poor’s/Case-Shiller Index. For the first time since early 2007, the index of 20 major cities was virtually flat, rather than down.

Earlier reports show that sales of existing homes nationwide rose last month for the third consecutive month, while sales of new homes increased in June by the largest percentage in eight years, according to the NATIONAL ASSOCIATION OF REALTORS® (NAR) and the U.S. Commerce Dept., respectively.

Although some skeptics believe the market is pausing before home prices decline further, the median price in California’s housing market appears to be stabilizing. June marked the fourth consecutive month of rising home prices and the second largest gain on record for the month of June, based on statistics dating back to 1979. The year-to-year decline in June also was the smallest in the past 16 months.

The S&P/Case-Shiller price index for 20 cities showed a half-percent gain when May was compared with April. It was the first month-over-month increase in the index in 34 months. “It is very possible that years from now we will say that April 2009 was the trough in home prices,” said Maureen Maitland, vice president for index services at Standard & Poor’s.

One explanation for the increase in median prices is the rise in demand from buyers, especially first timers taking advantage of the $8,000 federal tax credit, which expires in December. The NATIONAL ASSOCIATION OF REALTORS® (NAR) is lobbying for the tax credit to be extended and to be replaced with a $15,000 credit for all buyers.

Another factor in the market’s resurgence is the prevalence of foreclosures, which make up about a third of all existing home sales. “Although another surge of foreclosures is expected later this year, demand remains strong, so the market may be able to absorb more distressed properties without significantly impacting the median price,” said C.A.R.’s Chief Economist Leslie Appleton-Young.