Home prices rose in August for the third straight month, a rapid pace of recovery that surprised economists and raised questions about how long the trend can last.
After a steep three-year descent, home prices rebounded this summer at an annualized pace of almost 7 percent, the Standard & Poor's/Case-Shiller home price index showed Tuesday. Against a backdrop of rising unemployment and falling consumer confidence, the speed of the recovery stumped Robert Shiller, economist and co-creator of the index.
"It's a time of exceptional uncertainty," Shiller said. "It doesn't seem like a time to see home prices booming, but that's what's happening."
He expects prices will continue to rise for the next few months, but can't forecast beyond that, explaining, "There's no way to be a statistician about this."
The Case-Shiller index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices were down 11.4 percent from August a year ago, the annual declines have slowed since February.
Rising home prices are a key ingredient to rebuilding the economy. Homeowners feel wealthier when their property appreciates in value and are more likely to spend money. Rising prices also help millions of homeowners who owe more to the bank than their homes are worth.
But many economists expect a double dip in prices. Despite signs the economy is recovering, home prices could decline again as unemployment and foreclosures rise and a tax credit for first-time homebuyers expires next month.
Zach Pandl, an economist at Nomura Global Economics, expects prices to fall to the lows reached earlier this year before recovering in early 2010.
"We need to see flat to rising prices in the winter months," Pandl said. "That would be a very encouraging sign that prices have bottomed out."
While prices are still down about 30 percent from the peak in 2006, the rebound appears widespread. Prices rose month-over-month in 15 metro areas since June, with San Francisco, Minneapolis and San Diego leading the way.
September home sales figures back up the recovery. Home resales climbed more than 9 percent last month, the largest amount in more than 26 years, the National Association of Realtors said last week. Sales figures for newly built homes are due out Wednesday.
Jacqueline Buchanan picked up a two-bedroom bargain foreclosure five miles from her work in Miami. She plans to qualify for the federal tax credit and spend the money on her new home.
"You want to know how good of a deal it was? In 2007, the property sold for $449,000 and I got it for $71,000," said the 50-year-old nurse, who moved here from England more than two years ago. "And it's immaculate."
Though prices in Miami have edged up for three months in a row, they are about half the level they were in 2006, according to the Case-Shiller index.
Congress is considering extending the tax credit that saves first-time buyers 10 percent of the sales price, up to $8,000. This week, top Democrats in the Senate pressed a plan that would prolong the credit but gradually phase it out over the next year.
Supporters will likely point to new data Tuesday that showed confidence about the U.S. economy receded unexpectedly in October. With job prospects bleak, the Conference Board's Consumer Confidence Index fell almost 6 points from September to the lowest level since May.
And home prices are not rising everywhere.
Prices in Las Vegas, Seattle and Charlotte, N.C., all fell to their lowest levels in August. Prices in Las Vegas have plunged by 56 percent since peaking in April 2006, the largest peak-to-trough decline of all 20 cities.
"My worry," Shiller said, "is that confidence will drop back and the rally we're seeing in the housing market will collapse."