June home prices show the effect of tax credit

Updated: August 31, 2010 - 7:53 PM

The Twin Cities saw some of the higher increases. But declines are predicted.

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A row of new homes in the Boulevard Heights development in St. Louis. U.S. home prices rose in June for the third straight month.

Photo: Jeff Roberson, Associated Press

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WASHINGTON - Home prices rose in June for a third straight month as now-expired tax credits inspired a burst of home-buying. But prices are expected to fall through the rest of the year now that demand has faded.

The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago.

Seventeen cities showed monthly price gains. Still, the gains were weaker from the previous month in several markets, including San Francisco, San Diego and Los Angeles.

Home prices nationally were up 4.4 percent in the April-to-June quarter. That followed a decline of 2.8 percent in the January-to-March quarter. The jump was largely because buyers could take advantage of government tax credits of up to $8,000.

Home sales have dropped sharply since those incentives expired. Lending standards remain tight, unemployment is stuck near double digits and foreclosures are expected to remain at extraordinary levels.

"We do not take this report as a signal of future strength," wrote BNP Paribas economist Yelena Shulyatyeva. She expects the Case-Shiller report to show price declines by August. Economists at IHS Global Insight project home prices will fall by up to 8 percent and hit the bottom sometime next year.

The biggest monthly increases in June were in Chicago, Detroit and Minneapolis-St. Paul. Prices rose 2.5 percent in each of those cities. Prices in Seattle and Phoenix were flat. Home prices in Las Vegas fell 0.6 percent.

ASSOCIATED PRESS