Author`s name Pravda.Ru

Home Values Rebounding due to Government Tax Credits

In 20 U.S. cities home values rose in July by the most in almost four years. That helped stem the record plunge in household wealth that’s depressed spending.

The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York. According to another report, consumer confidence unexpectedly fell in September, while holding above the record low reached earlier this year.

Home values are rebounding as low borrowing costs and government tax credits lift home sales. Combined with rising stock prices, the gains will begin to restore the $13 billion plunge in net worth caused by the worst financial crisis since the Great Depression, a process that economists such as Brian Bethune say will take years to complete

Home prices are "a major, major turning point for the economy," said Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. "We are eating away at the problem of household balance sheets," Bloomberg reports.

It was also reported, U.S. stocks retreated after an unexpected decline in consumer confidence overshadowed a smaller-than-forecast drop in home prices. Crude oil fell as the dollar strengthened, while Treasuries were little changed.

Benchmark indexes erased most of an early advance as the Conference Board’s confidence index slipped to 53.1, trailing the median economist estimate of 57. Energy companies led the decline before the introduction of proposed legislation to control global warming. Lennar Corp. and KB Home climbed more than 1.5 percent as the S&P/Case-Shiller home-price index fell 13.3 percent in July from a year earlier, the smallest drop in 17 months.

“We’ve had a good rally,” said Randy Bateman, who oversees $13 billion as chief investment officer at Huntington Asset Advisors in Columbus, Ohio. “Some people are going to say valuations have recovered sufficiently given the uncertainties and pull money off the table.”

The Standard & Poor’s 500 Index slid 0.3 percent to 1,060.21 at 12:31 p.m. in New York. The Dow Jones Industrial Average decreased 33.55 points, or 0.3 percent, to 9,755.81, Bloomberg reports.

In the meantime, the National Association of Realtors and the National Association of Home Builders are pressing for an extension of the tax credit into next year. The Realtors group said in mid-September that 350,000 new buyers would not have purchased a home this year without the credit, which may cost the Treasury as much as $15 billion. Opponents of an extension say it would be too costly to taxpayers. Several bills have been introduced to expand and extend the credit, and earlier this month the White House said its economic team is looking at the various options.

Paul Dales, U.S. economist for Capital Economics in Toronto, said in a report on Sept. 29 that while prices are being supported by the tax credit, more significant drivers are economic stabilization and a decline in mortgage rates below 5%. "This suggests that the recovery will continue even if the tax credit is not extended beyond November," Dales writes. "That said, without the tax credit the pace of the recovery in both activity and prices will slow. Moreover, on the Case-Shiller measure prices remain [more than] 30% below their peak. Accordingly, even a fairly robust recovery may not provide much of a boost to consumption," BusinessWeek reports.