Home-Price Drop in U.S. Supports Low-Rate Outlook: Chart of Day
A possible relapse in home prices that had Fed policy makers concerned late last year may now be coming to pass, underscoring forecasts by economists such as Jan Hatzius that an interest-rate increase is a long way off.
The CHART OF THE DAY graphs median home prices for existing and new houses. At $163,600 in January, the median cost of an existing single-family home was the lowest since May 2002, figures from the National Association of Realtors showed last week. For new houses, the $203,500 median price was at a six- year low, according to data from the Commerce Department.
“We are likely to see some downward pressure on home prices in 2010,” said Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York. Hastening the decline, he said, will be the June 30 expiration of a government tax credit for homebuyers and the lapse later this month of the Fed’s mortgage- debt purchase plan aimed at keeping a lid on borrowing costs.
Hatzius is among economists anticipating the Fed will keep its benchmark interest rate near zero at least for the rest of the year.
The minutes of the Fed’s Dec. 16 meeting said “some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices.”
While median prices for existing and new homes are volatile, more stable measures such as the LoanPerformance home- price index from First American CoreLogic, which tracks the same house over time, also showed values declined in the last four months of 2009, Hatzius said.