April Home Prices Boosted Slightly by First Time Homebuyer Tax Credit

Today the S&P/Case-Shiller Home Price Index came out, and it showed a small improvement in home prices in April 2010.  The data showed a seasonally unadjusted 0.8 percent rise over March 2010, coming in ahead of expectations.  From the report:

“Home price levels remain close to the April 2009 lows set by the S&P/Case Shiller 10- and 20-City Composite series. The April 2010 data for all 20 MSAs and the two Composites do show some improvement with higher annual increases than in March’s report. However, many of the gains are modest and somewhat concentrated in California. Moreover, nine of the 20 cities reached new lows at some time since the beginning of this year. The month-over-month figures were driven by the end of the Federal first-time home buyer tax credit program on April 30th. Eighteen cities saw month-to-month gains in April compared to six in the previous month. Miami and New York were the two that fared the worst in April compared to March. New York is the only MSA to have posted a new relative index low with April’s report.” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s.

“Other housing data confirm the large impact, and likely near-future pullback, of the federal program. Recently released data for May 2010 show sharp declines in existing and new home sales and housing starts. Inventory data and foreclosure activity have not shown any signs of improvement. Consistent and sustained boosts to economic growth from housing may have to wait to next year. “

The final paragraph there is telling, and I think suggests what we all know on some level somewhere: the housing market (and the general economy) are not out of the woods by any stretch of the imagination, and we could be in for more price declines before the market has totally corrected itself.  Right now home prices are about 30 percent below their summer 2006 peak.  Mortgage rates are at all time lows.  Despite these favorable buying conditions, mortgage applications have plummeted to a 17 year low since the expiration of the first time home buyer tax credit.

At the end of the day, it appears that the first time home buyer tax credit accelerated home sales into the spring at the expense of the summer and fall.  It is unclear how many people bought specifically because of the tax credit, but it may have only prolonged the bottoming-out of the housing market.  The bottom line is this: until we see marked improvements in the labor market and a reduction in the unemployment rate, we are unlikely to see many gains in the housing market.

What do you think?  Let us know in the comments section below.