USA still faces a rocky road to recovery says top economist

The U.S. residential market still faces a long and “rocky road” to recovery, Karl Case, the co-creator of the S&P/Case-Shiller Index of property values said this week as prices feel more steeply than expected.

As one of the most influential independent housing indicators in the States, the S&P/Case-Shiller index of property values in 20 cities has just revealed that prices declined by 3.7 percent in November 2011 versus November 2010, after decreasing 3.4 percent in October year-on-year.

This was worse than the 3.3 percent drop predicted by a group of leading U.S. economists for a Bloomberg News survey this month. And any sort of recovery is being hampered by yet another wave of foreclosures that threatens to keep the prices under pressure, Bloomberg reported this week.

The news comes as the U.S. Federal Reserve put out a statement saying that that the American housing sector “remains depressed.” The view is that more stability in housing prices will be required before investors start to take advantage of the country’s record-low mortgage rates.

“There has been no change in the way households perceive selling conditions — the majority of them think it’s a bad time to sell their homes,” says Jonathan Basile, a U.S. economist at Credit Suisse in New York. “It’s going to require higher sales numbers and much better housing fundamentals to turn around the notion that the biggest asset for households is no longer expected to go down.”

The Case-Shiller index is based on a three-month average, which means the November data was influenced by transactions in September and October. Home prices adjusted for seasonal variations fell, 0.7 percent in November, matching the drop in October. Unadjusted prices declined 1.3 from October as 19 of 20 cities showed declines. Eighteen of the 20 cities in the index showed a year-on-year decline, led by an 11.8 percent slump in Atlanta and a 9.1 percent decrease in Las Vegas.

Detroit showed the biggest year-over-year increase, with prices rising 3.8 percent in the 12 months to November. The other gain was in Washington, where prices climbed 0.5 percent from November 2010.

“Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” David Blitzer, chairman of the S&P index committee, said in a statement. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”

“Lending standards and demand for loans to purchase residential real estate were reportedly little changed” in the fourth quarter from the prior three-month period, the Federal Reserve announced this week. The Fed surveyed loan officers at 56 domestic banks and 23 U.S. branches and agencies of foreign banks between Dec. 21 and Jan. 10 2011. They believes that the “housing sector remains depressed,” and used this as the reason for their decision to keep interest rates low until 2014.

However, new jobs and rising incomes have some made Americans more optimistic, and house-builders have become more upbeat about the market. The National Association of Home Builders / Wells Fargo sentiment index rose this month to the highest level since June 2007 as sales and buyer traffic rates rose.

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