Chicago, Detroit atop S&P/Case Shiller index

October 25, 2011

The Associated Press and CityRoom

(Getty/File)

The Chicago area saw the second highest increase in home prices among the nation's 20 largest metro areas in August, according to a monthly survey of home prices released Tuesday. 

Prices rose 1.4% from July to August in both Chicago and Detroit, ranking the two cities second behind only Washington, D.C. in the latest Standard & Poor's/Case-Shiller Index.  Home prices were up in 10 of the 20 cities surveyed, marking the fifth straight month that at least half of the cities showed monthly gains.

The August data provides a "modest glimmer of hope" that some areas may have bottomed out and could be turning around, said David M. Blitzer, chairman of S&P's index committee. 

“The Midwest is one region that really stands out in terms of recent relative strength," said Blitzer. "Chicago, Detroit and Minneapolis have all posted very sharp monthly increases going back to May."

In Chicago and Minneapolis, fewer homes are being put up for sale, leading to higher prices and better sales figures. That's likely due to fewer foreclosures in those cities. September's drop in homes for sale in the Twin Cities was the largest decline in inventory in more than seven years, according to the Minneapolis Area Association of Realtors.

In Detroit, the recovering auto industry has helped lead a small rebound in the housing market. Home prices have risen 2.7 percent since August 2010, making it one of only two cities to show a year-over-year gain in that time. The other was Washington.

Detroit was one of the hardest hit after the housing bubble burst more than four years ago. Home prices there are coming off 1995 levels. So the gains are relatively small compared to how far prices have fallen.

Still, Robert Shiller, the co-founder of the index and a Yale economics professor, said in an interview on CNBC that overall home prices were "flat" and a recovery in the struggling housing market was not on the horizon.

The index, which covers half of all U.S. homes, measures prices compared with those in January 2000 and creates a three-month moving average. The August data are the latest available.

Prices are certain to fall again once banks resume millions of foreclosures. They have been delayed because of a yearlong government investigation into mortgage lending practices.

"We certainly believe the bulk of the decline in housing is behind us and indeed, one might even say that 'housing' is more likely to improve from here," said Dan Greenhaus, chief global strategist for BTIG. "But given the overwhelming level of inventory that remains on the market ... further price declines seem almost assured to help clear the market."

Home prices have stabilized in coastal cities over the past six months, helped by a rush of spring buyers and investors. But this year, home prices in many cities, including Cleveland, Detroit, Las Vegas, Phoenix and Tampa, have reached their lowest points since the housing bust more than four years ago.

Many people are reluctant to purchase a home more than two years after the recession officially ended. Even the lowest mortgage rates in history haven't been enough to lift sales.

Some can't qualify for loans or meet higher down payment requirements. Many with good credit and stable jobs are holding off because they fear that home prices will keep falling.

Sales of previously occupied home sales are on pace to match last year's dismal figures — the worst in 13 years. Sales of new homes fell to a six-month low in August and this year could be the worst since the government began keeping records a half century ago.

Foreclosures and short sales — when a lender accepts less for a home than what is owed on a mortgage — makes up about 30 percent of all home sales last month, up from about 10 percent in past years. The large number of unsold homes and foreclosures are sending prices lower and hurting sales.