Dwindling inventories lift US home prices

US house prices rose in November as record low inventories sent home values higher, giving further evidence that the housing market recovery is gaining traction.

Consumer confidence dropped in January to its lowest level in more than a year, however, as Americans felt the pinch of the expiration of a tax holiday.

The Standard & Poor’s/Case-Shiller home price index, which tracks monthly changes in the value of residential property in 20 metropolitan regions across the US, showed prices edged 0.6 per cent higher over the month on a seasonally adjusted basis.

While the data came in below October’s 0.7 per cent rise and consensus forecasts of a 0.7 per cent uptick, prices are on an upward trajectory, posting a 10th consecutive monthly gain in November.

Year on year, prices rose 5.5 per cent, the fastest pace of increase since August 2006 and stronger than in 2010 when the homebuyer tax credit buoyed sales and prices. That was a turnround from the negative 3.9 per cent rate reported a year ago.

“The key point here is that each successive price increase adds more weight to the idea that the housing market is recovering, and nothing pulls people into the market faster than the thought that prices will rise further,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Home prices have risen as the pool of unsold properties has begun to dwindle. The excess supply of houses that were built during the housing boom has declined while the number of previously owned homes available for sale has fallen to an 11-year low.

Year on year, prices surged at a 22.8 per cent annual rate in Phoenix, 12.7 per cent in San Francisco and 11.9 per cent in Detroit. Minneapolis and Las Vegas also posted double-digit gains over the past 12 months.

“The house price rally still has a long way to go. The most important driver will be the dwindling supply of new homes. Thanks to a combination of an extended period of under construction and a fewer foreclosures, the inventory-to-sales ratio fell in December to the lowest level since May 2005,” said Harm Bandholz, chief US economist at UniCredit Research.

Even as new and existing home sales rise, a number of factors continue to hamper the housing recovery, including stagnant income growth, high unemployment levels, lingering uncertainty about the economy and the still large number of homes in the foreclosure pipeline.

“There are a large pool of homeowners that are still under water,” said Daren Blomquist, vice-president at housing data provider RealtyTrac. “The question is what happens to these homeowners. Are they going to stick it out, let the lender foreclose or short sale – when homes are sold at deep discounts? This is still a concern.”

Separate data on Tuesday showed consumer confidence fell in January, reflecting the impact of higher taxes on Americans left with less take-home pay.

The Conference Board, which compiles a survey of consumer attitudes on the economy, said its confidence index dropped to 58.6 in January – the lowest since November 2011 – from a reading of 66.7 in December.

Lynn Franco, an economist at The Conference Board said: “Consumers are more pessimistic about the economic outlook and, in particular, their financial situation. The increase in the payroll tax has undoubtedly damped consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock.”