Home Prices Continue to Slide

S&P/Case-Shiller indexes show home prices dropping; consumer confidence gains ground; and the IMF predicts that the size of China's economy will surpass that of the U.S. by 2016.

Pretty much everyone expects home prices to keep falling this year. The questions now are how much and how fast. Some hints were available on Tuesday from the closely watched S&P/Case-Shiller indexes, and they weren’t particularly hopeful.

The Case-Shiller 10-city and 20-city indexes both registered 1.1 percent declines from January to February, according to the report, and compared with a year ago, the 10-city was down 2.6 percent and the 20-city lost 3.3 percent. That means that home prices are now only a bit higher than they were in April 2009, back during the initial depths of the Great Recession.

The only bulletproof market so far has been Washington D.C., which posted a 2.7 percent year-over-year gain in February. Interestingly, Detroit managed a 1 percent month-over-month increase in prices, the only market to do so, but that increase was probably of the deceased feline variety–that is, about avoiding a new low than anything else.

Consumer confidence sees uptick

The Conference Board reported on Tuesday that its Consumer Confidence Index actually posted a gain, which might mean that Americans are now a little less worried about events that started unfolding earlier this year, namely the civil unrest in various parts of the Middle East and Japan’s multilayered disaster. In any case, the index rose to 65.4 in April from 63.8 in March.

The present situation index increased to 39.6 from 37.5, while the expectations index rose to 82.6 from 81.3. Much of the uptick was led by consumers’ assessment of the labor market, which was more optimistic than last month. Those saying jobs are “hard to get” declined to 41.8 percent from 44.4 percent, while those lucky souls stating that jobs are “plentiful” increased to 5.2 percent from 4.6 percent.

“Consumers’ short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing,” notes Lynn Franco, director of the Conference Board Consumer Research Center, in a statement. “Inflation expectations, which had spiked, retreated somewhat in April. Although confidence remains weak, consumers’ assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.”

IMF posits China as number one

The International Monetary Fund released a report on Tuesday predicting that the size of China’s economy will surpass that of the United States by 2016, which is a lot sooner than most big-picture economic prognosticators say. Specifically, the IMF says that the Chinese economy will grow to 18 percent of the world’s economy, up from 14 percent now, and wave hello as it passes the U.S. economy, which will shrink to 17.7 percent of the world’s total in five years. The organization says that the Chinese GDP (based on purchasing-power parity) will be $19 trillion in 2016, compared with a U.S. economy of $18.5 trillion.

The prediction depends on some sizable assumptions–big as the Great Wall of China, one might say. One is that the Chinese economy will grow 10 percent each year until 2016, and that it’s growth figures are more accurate than fudged. More fundamentally, the growth of China’s overall GDP isn’t so surprising, considering that the country has about 20 percent of the world’s population. It would indeed be astonishing if China were going to catch up with the U.S. in per capita GDP, but not even the IMF thinks that’s remotely likely, since per capita U.S. GDP is about $42,500 (in 2005 dollars), while China’s is about $2,800.

Wall Street wasn’t overly concerned about the price of houses on Tuesday, with the Dow Jones Industrial Average scoring a strong 115.49-point gain, or 0.93 percent. The S&P 500 was up 0.9 percent, and the Nasdaq advanced 0.77 percent.