US house prices still falling but the 'worst has passed'

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The Independent Online

House prices in the United States are still falling at a record pace, and sales of new homes remain anaemic, according to the latest data.

Economists pored over the monthly survey of metropolitan house prices, which showed a record 15.9 per cent decline in the cost of the average home in 20 major cities in June, compared with the same month last year.

Optimists concluded that, with the pace of decline slowing – and almost half of the cities showing an uptick in prices compared with May – the bottom of the market could be in sight. And they pointed, too, to data from the Commerce Department which showed a 2.4 per cent month-on-month increase in the number of newly built homes sold in July, which suggests bargain-hunters are being tempted into the market.

However, the number of new home sales in July – an annual rate of 515,000 – was in fact lower than Wall Street had been expecting, because the Commerce Department revised sales figures for June much lower.

Dana Saporta, economist at Dresdner Kleinwort in New York, attributed the uptick in sales to the number of foreclosed homes put on the market at knock-down prices. "This is the first step in an improvement in housing. There are some signs the worst has passed us. And that's the best we could say for now."

The Case-Shiller index of metropolitan house prices for June showed prices were down 0.5 per cent on the previous month, a more modest decline than the 2-2.5 per cent month-on-month figures typical earlier this year.

Price declines continue to be steepest in areas where the number of new homes soared during the speculative housing boom, in states such as Arizona, Nevada and California. These are the states that are suffering the highest levels of foreclosures.

David Blitzer, chairman of the index committee at Standard & Poor's, publisher of the Case-Shiller, said: "While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level. Depending on where you focus... you can see some different stories on where home prices are headed."

Economists are poring over the details of the latest housing market data because it is so important to the likely duration of the credit crisis. Trillions of dollars of investment has been built on top of the US housing market, because mortgage-backed securities and other mortgage derivatives ultimately derive their value from the homes used as collateral for the mortgages.

Separately, the number of US banks facing serious financial difficulties has risen by 30 per cent in the past three months. The Federal Deposit Insurance Corp, the industry's regulator, said 117 banks were on its watchlist at the end of June, the highest in five years.