U.S. home prices have reached a bottom and may be set to rise in the first half as buyers take advantage of increased affordability, said Karl Case, the economist who co-founded the S&P/Case-Shiller home price index.
"Prices have gone flat, bouncing around at what I think is essentially a bottom," Case, a retired professor of economics at Wellesley College, said in a radio interview today on "Bloomberg Surveillance." "We're really going to have to wait to see what the spring market brings."
The S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from a year earlier, the biggest 12- month decrease since December 2009, the group said today in New York. The Federal Housing Finance Agency, which measures sales financed with mortgages backed by Fannie Mae and Freddie Mac, said separately that prices slid 4.3 percent from November 2009.
An abundance of inexpensive homes and an expanding economy will support housing demand as it enters the so-called spring selling season when the bulk of transactions typically occur, said Case, who created the price index with Yale University Economics Professor Robert Shiller. The National Association of Realtors' affordability index, a gauge of median income against home prices, reached an all-time high of 184.5 in November.
"There are bargains out there," said Case. Affordability will entice first-time buyers to jump into the market "if jobs are created at a pretty good clip," he said.
The unemployment rate dropped to 9.4 percent last month after reaching a seven-month high of 9.8 percent in November, according to the Bureau of Labor Statistics. The jobless rate has remained above 9 percent for 20 months and will probably average 9.3 percent this year, according to a Bloomberg News survey of economists.
Consumer confidence in January climbed to the highest level in eight months as Americans became more optimistic about job prospects, according to a report today by the Conference Board. The share of people who said they intended to buy a home rose to 2.2 percent, the New York-based private research group said. That was the second consecutive gain after November's 1.7 percent, which matched an all-time low set at the end of 2009.
The Federal Open Market Committee today began a two-day meeting in Washington that culminates with a policy statement at around 2:15 p.m. tomorrow. Since reducing its target federal funds rate to near zero in December 2008, the central bank has used its balance sheet as a monetary policy tool. Its assets have tripled to $2.43 trillion from $873 billion in February 2008.
The Fed probably will push forward with its plan to buy $600 billion in securities to stimulate the economy, based on the minutes to last month's meeting released on Jan. 4. The recovery's pace is likely to "remain modest, with unemployment and inflation deviating from the committee's objectives for some time," according to the minutes.
A real estate boom pushed prices in the 20 cities covered by the Case-Shiller index to a record high in July 2006 after almost doubling in six years. The benchmark tumbled 33 percent from its peak to an April 2009 low that put homes at 2003 prices. It has gained 3.3 percent since then.
-- With assistance from Ken Prewitt in New York and Shobhana Chandra in Washington. Editors: Kara Wetzel, Rob Urban