Home prices climb for 2nd straight quarter
S&P/Case-Shiller index shows prices up 3.1% from 3 months earlier, but down nearly 9% from a year ago.
NEW YORK (CNNMoney.com) -- Home prices rose for the second consecutive quarter but remained nearly 9% lower than a year earlier, according to a housing market report issued Tuesday.
Prices nationwide rose 3.1% in the three months ended Sept. 30, according to the S&P/Case-Shiller Home Price Index, a closely watched gauge of housing market direction. That followed a similar 3.1% rise during the second quarter of the year.
Prices were still below a year ago, however, down 8.9% compared with the third quarter of 2008. Nevertheless, that's an improvement from the double-digit price decreases the index had been reporting; the second quarter year-over-year decline was 14.7%. Prices had dropped 19% year-over-year during the first quarter of 2009.
"We have seen broad improvement in home prices for most of the past six months," says David Blitzer, Chairman of the Index Committee at Standard & Poor's.
The Case-Shiller 20-City Composite index posted its fifth monthly increase in a row in September, rising 0.3% from August levels.
The worst performing market continued to be Las Vegas, where prices have dropped for 37 consecutive months. They're now 55.4% off their highs.
Midwestern cities staged a comeback in September, with Minneapolis and Detroit prices each gaining 1.8%, the most of any of the 20-cities covered. Chicago prices jumped 1.2%; San Francisco climbed 1.3%; and Los Angeles and Phoenix both rose 0.8%.
Stopping the home price slide is an important factor in any economic recovery. Falling prices increase the number of "underwater" homeowners, those who owe more on their mortgage balances than their homes are worth.
Underwater mortgage borrowers are much more likely to lose their homes to foreclosure. Indeed, it's a crucial factor in whether people lose their homes or not, as Mark Goldman, a San Diego State University real estate professor pointed out.
"If they have a home worth $300,000 and they owe $250,000 and can't pay their mortgage, they'll just sell the house," he said.
It's when they have a house worth $200,000 and they owe $250,000 that these people default, because the sale of the house would not pay their whole debt.
A report from First American CoreLogic released Tuesday, revealed that nearly a quarter of all mortgage borrowers are underwater. That, as well as the ongoing foreclosure problem, has contributed to doubt about the staying power of the recent price trend.
"I think it's temporary," said Pat Newport, a real estate analyst with IHS Global Insight. "I can't see home prices stabilizing as long as we have that problem."
According to Newport, foreclosures could worsen over the next several months as many toxic loans go through resets, making them much less affordable for their borrowers.
A significant contributor to the improvements in the housing markets have been programs such as the tax credit for first-time homebuyers, according to Bob Walters, the chief economist for Quicken Loans.
"[But] the real driver in all of this -- from home sales to home pricing appreciation -- has been the protracted run of favorable mortgage rates," he said. "It will be interesting to see how home prices react when we see rates begin to increase, as they are sure to do over time."