April 22 (Bloomberg) -- U.S. home prices rose 0.7 percent in February from January, the first consecutive monthly gain in two years, a sign that low interest rates may be moderating declines in real estate values.
Prices fell 6.5 percent in February from a year earlier, the second-smallest drop in six months, led by a 19 percent decrease in the region that includes California, the most populous U.S. state, the Federal Housing Finance Agency in Washington said today. The gain in February from a month earlier matched the average of 10 estimates in a Bloomberg survey.
Mortgage rates have tumbled 1.6 percentage points in six months, making houses and condominiums more affordable. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 5.3 percent last week as Americans took advantage of interest rates near record lows. Home sales rose 5.1 percent in February from a month earlier, the National Association of Realtors said March 23.
“As demand firms, and once inventories of houses and a broad range of goods are brought into line with sales, economic activity should begin to stabilize,” Federal Reserve Vice Chairman Donald Kohn said in an April 20 speech in Delaware.
The inventory of properties on the market fell to a 9.7 month supply in February at the current sales pace, down from April’s high of 11.3 months, and sales rose 5.1 percent from a month earlier, the Realtors group said.
The number of Americans signing contracts to buy previously owned homes rose 2.1 percent in February, led by a 14.5 percent jump in the Midwest and a 10.6 percent increase in the Northeast, the National Association of Realtors said in an April 1 report.
The FHFA’s February house price index is down 9.5 percent from its peak in April 2007. The Mountain region of the U.S., including Arizona and Nevada, had the second-biggest decline in home prices from a year ago, dropping 9.2 percent, the FHFA said in today’s report. The South Atlantic area, including Florida, fell 8 percent.
The average U.S. rate for a 30-year fixed home loan dropped to 4.82 percent last week from 4.87 percent a week earlier, according to Freddie Mac, the McLean, Virginia-based mortgage buyer. The rate has averaged 5.02 percent this year, compared with 6.21 percent during the five-year housing boom that ended in 2005.
The difference between 30-year mortgage rates and 10-year Treasury yields has narrowed to about 2.2 percent from 3.1 percent in December, which was the widest since 1986. The spread remains almost 0.7 percentage point above the average of the past decade, data compiled by Bloomberg show. Rates for 15-year mortgages are about 1.8 percent above 10-year Treasury yields, compared with an average 1.4 percent since 1999.
‘Glut of Homes’
U.S. banks owned $11.5 billion of foreclosed homes in the fourth quarter, up from $6.7 billion a year earlier, according to the Federal Deposit Insurance Corp. in Washington. California and Florida metropolitan areas led the U.S. in foreclosures in the first quarter as unemployment and falling property values deepened the housing recession, according to RealtyTrac Inc., based in Irvine, California.
“Whatever damage has been done in California is only going to get worse because there is a glut of homes owned by lenders that aren’t yet on the market,” said Bruce Norris, a principal with the Norris Group, a Riverside, California-based real estate investment firm. “These homes are like a shadow inventory that is likely to drag down prices further when they come onto the market.”
Freddie Mac, along with larger rival, Washington-based Fannie Mae and banks including New York-based Citigroup Inc., have slowed or delayed foreclosures using various moratorium plans in the hopes that homeowners in default will be able to modify their loans.
U.S. home prices probably will fall 5.1 percent this year to $188,500, less than the 9.3 percent plunge in 2008, according to the real estate group. Home resales probably will rise 1 percent to 4.96 million after a 13 percent drop last year, NAR said in a forecast posted on its Web site.
The housing market may be buoyed by improvements in the banking sector. Treasury Secretary Timothy Geithner said yesterday in testimony to a congressional oversight panel that most banks now have “more capital than they need.” Geithner also said there were signs of “thawing” in credit markets.
The U.S. has pumped more than $590 billion of public money into troubled financial institutions over the last six months through the $700 billion Troubled Asset Relief Program. Geithner said in a letter to the oversight committee yesterday that $109.6 billion remains of the funds authorized by the Emergency Economic Stabilization Act last year.