U.S. home prices rose in July

Arkansas values dropped 2.6%, 13th-straight monthly decline

— Home prices rose again in July in many of the nation's major cities, a trend that will help ease the foreclosure crisis and slowly rebuild the wealth of millions of American homeowners.

Higher home prices show that recession-weary consumers are still willing to take advantage of a deal. Prices had declined for three years before turning around in June. Now, mortgage rates around 5 percent, a tax credit for new owners and low-priced foreclosure have people scouring real estate Web sites, visiting open houses and signing contracts again.

It's a critical step in the economic recovery because homes are typically a consumer's largest asset and rising prices make them feel wealthier and more confident to spend money. Consumer spending is the most important engine for economic growth.

"No matter how you measure it, house prices looked to have bottomed, which is the much-needed ingredient required to bake this housing market recovery," wrote Jennifer Lee, economist at BMO Capital Markets.

The Standard & Poor's/Case-Shiller home price index of 20 major cities rose 1.6 percent from June to a reading of 144.23, according to data released Tuesday. Though home prices are still 13.3 percent below July a year ago, the annual declines have slowed in all 20 cities for the sixth straight month.

The index has risen at an 8 percent annualized rate in the three months to July, the bestperformance since early 2006, according to High-Frequency Economics.

The index, however, is down about 30 percent from the peak in mid-2006, and some analysts still expect further declines as unemployment and foreclosures rise though next year.

In Arkansas, home prices dropped in July, according to the Arkansas Realtors Association, which examines sales in 42 of the state's 75 counties. The average sales price was $153,047, 2.6 percent lower than in July of last year. It was the 13th-straight monthly decline in sales prices in Arkansas, although the state's homes haven't experienced a precipitous drop in value like those seen in Florida, California and some other states.

Nationwide, 16 million homeowners owe more on their mortgages than their homes are worth, representing a loss of $4trillion in home equity. Those homeowners are more likely to go into foreclosure if they lose their jobs because they can't sell unless their lenders agree to take the losses.

Job or income loss is the No. 1 reason homeowners fall behind on their mortgages, studies show. Fannie Mae, the Federal National Mortgage Association, said Tuesday that 4.2 percent of its home loans were at least three months delinquent in July, up from 3.9 percent in June.

Home prices nationwide are now at levels not seen since the third quarter of 2003. And prices in Las Vegas, Detroit and Seattle are still falling.

Prices in Las Vegas, one of the most speculative markets during the boom, are down more almost 55 percent from their peak. In August, almost 80 percent of home resales in Nevada were either a foreclosure or a sale below the value of the mortgage, according to a survey by the National Association of Realtors.

Nevertheless, there are clearpositive trends in the housing markets. Home prices rose in 13 metro areas for at least three straight months. The biggest gains in July were in Minneapolis, San Francisco and Chicago.

Agents in those three cities say prices are stabilizing because there are fewer foreclosures and less inventory overall. Lower priced homes are also getting multiple bids.

"Now we're seeing standard sales ticking up and foreclosure sales are way down," said Barb Van Stensel, a real estate agent with Keller Williams Lincoln Square in Chicago.

Cheaper houses are also attracting first-time homeowners, who can qualify for a tax credit worth 10 percent of the purchase price, up to $8,000. That deal, however, expires at the end of November and it's unclear if Congress will extend it.

Minneapolis homes priced under $250,000 are attracting many first-time homebuyers who often bid above the asking price, said Jennifer Kirby, an agent with Exit Ventures Realty.

Nationwide, sales of previously owned homes are nearly 14 percent above January lows, but are still down nearly 30 percent from their peak four years ago. At the same time, sales of newly built homes are up 30 percent from the bottom, but are off about 70 percent from the peak.

The Case-Shiller indexesmeasure home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.

Business, Pages 25, 30 on 09/30/2009

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