A key index of home prices in American cities turned positive in April, signaling that the housing slump may be turning a corner nationally despite considerable weakness in some hard-hit metropolitan areas.
Notching the first gain after seven months of declines, the Standard & Poor's/Case-Shiller index of 20 large cities rose 1.3% in April over March. The index was still down 1.9% compared with April 2011, although that was the smallest year-over-year decline since November 2010.
Economists were optimistic that the uptick in prices was significant and that real estate may be contributing again toward building American wealth. But the rise in housing values also comes at a tenuous time for the U.S. economy, with fears about an impending fiscal crisis at the end of the year beginning to hurt job growth domestically and concerns abounding over a broader global slowdown.
"The pieces of the housing recovery are falling into place," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. "But it is a housing recovery in the context of synchronous slowing in the major global economies, and that is where the trickiness lies."
A healthy recovery will require improvements in jobs, incomes and consumer confidence, Gabriel said, and those underpinnings don't look as strong as they did just a few months ago. On Tuesday, an index of national consumer sentiment showed a decline to 62 in June from 64.4 in May, the fourth consecutive drop.
Home sales this year have surged after last year's lackluster performance. Rock-bottom interest rates and cheap prices have helped boost affordability, even as homeownership has sunk to levels not seen in 15 years.
Foreclosures, which drag down prices, have made up a smaller share of the market this year. In places such as California the move-up market has shown signs of stirring to life. And an unexpected shortage of homes for sale has driven competition among buyers.
But whether housing can hold for the long term depends in part on job creation as well as the willingness and ability of U.S consumers to take on more mortgage debt. And despite the recent improvements in real estate, economists don't expect a big rebound in prices, nor do they anticipate that housing will play a huge role in the broader recovery through consumer spending.
"The key connection between rising home prices and consumers' spending is home equity extraction via bank lending," Ian Sheperdson, chief U.S. economist for High Frequency Economics, wrote in an analytical note. "That business is not coming back in size any time soon, no matter what happens to home prices."
In April, 19 out of the 20 cities tracked by the Case-Shiller index managed to post a gain over March. Only Detroit stumbled, down 3.6%.
Compared with April 2011, half of the cities rose and half fell. Some slipped badly, most notably Atlanta, which fell 17% from April 2011. Phoenix, which has undergone a startling housing rebound this year, showed the strongest year-over-year improvement, up 8.6%.
California metro areas have strengthened in recent months, according to the index, although Southern California hasn't kept pace with Northern California. The Los Angeles metro area, which includes Los Angeles and Orange counties, has notched two consecutive monthly gains, but is still only 1.9% above the most recent bottom hit in May 2009.
The San Diego metro area has posted three consecutive monthly gains and has fared better than the Los Angeles area, up 5.1% since bottoming in April 2009. San Francisco has posted two consecutive monthly gains and has done the best out of the Golden State metro areas, rising 10.6% since bottoming in March 2009.
The index doesn't track prices in California's Central Valley or the Inland Empire, where housing is still weak and the foreclosure rates of many cities are among the nation's highest.