US home prices at lowest since crisis began

US home prices extended their slump in December, falling to their lowest level year-on-year since the housing crisis began in mid-2006, while durable goods orders fell sharply in January. The latest data releases send mixed signals about an economic recovery even as consumer confidence rose sharply.

The S&P/Case-Shiller home price index fell 4 per cent against the same month in 2010. The index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the US.

Prices fell in 18 of the 20 cities in December. The index declined 1.1 per cent, but dipped 0.5 per cent on a seasonally adjusted basis. Analysts had expected prices to decline by 0.7 per cent. Miami and Phoenix were the only cities to record rises for the month, up 0.2 per cent and 0.8 per cent respectively, on a non-seasonally adjusted basis.

On a year-on-year basis, Detroit was the only city where prices rose, up 0.5 per cent. Atlanta had the steepest fall, with prices declining 12.8 per cent compared with December 2010.

“In terms of prices, the housing market ended 2011 on a very disappointing note,” said David Blitzer, S&P’s index committee chairman. “While we thought we saw some signs of stabilisation in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended.”

While some analysts believe home prices might have entered into a renewed period of decline, others are adamant that prices will stop falling in the second half of 2012.

David Stiff, chief economist at Fiserv, the financial services technology solutions company, said: “Our expectation is that prices will stabilise this summer and there are a number of positives that will put a floor under home prices, including an increase in employment, improvement in consumer confidence and thus home sales. House prices lag home sales data by about nine to 12 months.”

Consumer confidence data also released on Tuesday showed a sharp rise in sentiment in February to 70.8, significantly better than the forecast of 64, after the Conference Board’s index dipped in January to 61.1.

The Conference Board, which compiles a survey of consumer attitudes on the economy, said that there was big decline in those describing jobs as hard to get, down to 38.7 per cent versus January’s 43.3 per cent. February is the first reading below 40 per cent since November 2008, helped by a rise in employment and optimism for income prospects. The index is measured on a scale of 100 pegged to the level of confidence in 1985.

“The index is now close to levels last seen a year ago. Consumers are considerably less pessimistic about current business and labour market conditions than they were in January. And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects, and their financial situation,” says Lynn Franco, director of the Conference Board Consumer Research Center.

Separate figures showed durable goods orders in the US fell sharply in January, in spite of the recent positive reports of an upturn in the manufacturing sector.

Orders for long-lasting factory goods fell 4 per cent last month, significantly worse than expected, according to the commerce department. This follows a revised 3.2 per cent jump in December and 4.2 per cent surge in November. Durable goods orders were expected to fall 0.7 per cent month on month in January following the surge of the previous month, after a robust jump in aircraft orders.

Transportation equipment orders declined the most after two consecutive months of rises, falling 6.1 per cent.

The data, which are seen as volatile compared with other indicators, reflect new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

“The expiry at the end of last year of the accelerated tax allowances for capital depreciation may have been a bigger factor than we previously thought,” said Paul Ashworth, chief US economist at Capital Economics.

“It now looks like any gain in business investment in equipment and software in the first quarter will be pretty modest, supporting our view that overall gross domestic product growth will be a modest 1 per cent to 2 per cent annualised,” he added.

Analysts were concerned by the 3.2 per cent decline in orders excluding transportation and 4.5 per cent fall in orders, excluding defence.

“While a large proportion of this decline is from a 19 per cent month-on-month drop in non-defence aircraft, there is a very steep drop in machinery orders of 10.4 per cent,” said David Semmens, US economist at Standard Chartered.

“This is at odds with the ISM and regional surveys which have been promising to say the least, but this is hard data and although the series is volatile the drop in machinery spending is too great to be an anomaly,” he said.

Overall shipments increased 0.4 per cent, while capital goods shipments fell 1.1 per cent. Unfilled orders were up 0.5 per cent.

Inventories of manufactured durable goods rose by 0.7 per cent last month.