Home prices cooled more than expected in September, falling 0.7% from August, according to data released Tuesday, indicating that a sustained recovery in the nation's housing market is probably some time away.
Prices of previously owned single-family homes rose 0.6% in September over the same month last year, according to the Standard & Poor's/Case-Shiller index of 20 metropolitan areas. That was worse than most economists had predicted and was the smallest year-over-year gain since February, when the market began to recover.
The market has weakened considerably since federal tax credits drove sales during the spring and first-time buyers flooded into the market. But economists said more was at play than simply the lack of government stimulus.
"The national economy is certainly the No. 1 issue for housing," said David M. Blitzer, chairman of the index committee at Standard & Poor's. "Additionally, there is a large supply of houses on the market and further hidden supply due to delinquent mortgages, pending foreclosures or vacant homes."
Out of the 20 metro areas measured by the index, 18 posted declines in September, when the data were left unadjusted for seasonal differences. The only increases came in Las Vegas, up 0.1%, and Washington, up 0.3%.
In California, Los Angeles fell 0.1%, San Diego dropped 1% and San Francisco was off 0.9%.
Aside from the monthly data on the 20 metro areas, S&P also released its U.S. national home price index, a broader measure of national home prices that comes out quarterly. The national index fell 2% in the third quarter of 2010 after having risen 4.7% in the second quarter.
Anthony Sanders, a real estate finance professor at the Mercatus Center at George Mason University, said further declines were likely as potential buyers shied away from housing.
"People are still fearful of jumping into housing again despite low interest rates," he said. "They are still not sure what is going to happen with taxes in January, and they don't want to commit."
In a separate report Tuesday, consumer confidence improved in November. The Conference Board, a private research group, said its consumer confidence index rose to 54.1, up from 49.9 in October. The present situation index, which measures how consumers feel about their current state, rose to 24 from 23.5. The expectations index, which measures how people feel about their future prospects, increased to 74.2 from 67.5 in October.
"Consumer confidence is now at its highest level in five months, a welcome sign as we enter the holiday season," said Lynn Franco, director of the Conference Board Consumer Research Center. "Consumers' assessment of the current state of the economy and job market, while only slightly better than [October], suggests the economy is still expanding, albeit slowly."
But Paul Dales, U.S. economist for Capital Economics, said he was worried that the decline in housing would only serve to drag down consumer confidence in the months to come.
"We are concerned that the further rebound in consumer confidence in November will not translate into a sustained acceleration in consumption growth when the unemployment rate remains high and a double dip in house prices is underway," he said. "Continued weak demand and with high supply will mean that [housing] prices will soon fall to a new cycle low. That won't cheer up households one bit."
The index is based on the Conference Board's survey of 5,000 U.S. households. The group started the survey in 1967. The index is benchmarked to consumer sentiment in 1985, because that year was neither a peak nor a trough, and any reading above 100 indicates strong growth.