FHFA Reports Uptick in House Prices in May, but Will This Trend Last?

The ""Federal Housing Finance Agency"":http://www.fhfa.gov/ (FHFA) reported Thursday that U.S. house prices inched up 0.5 percent[IMAGE]

from April to May. This marked the third rise in as many months, leaving prices 1.6 percent above the recent trough. The question now: Will this trend last?

According to a report released by ""Capital Economics"":http://www.capitaleconomics.com/, May home prices were most likely boosted by the lingering effect of the surge in demand generated by the homebuyer tax credit. The macroeconomics research consultancy said now that demand is falling, it won't be long before prices start to fall too.

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In its report, Capital Economics also noted that the increase in housing inventory in June will adversely impact prices in the near term. After applying its own seasonal adjustment, the consultancy found that the months’ supply of unsold existing homes rose from 8.0 in May to 8.6 in June. Anything above 7.0 months has historically been consistent with falling house prices around four months later, Capital Economics said.

Despite the month-to-month drop, house prices for the 12 months ending in May fell 1.2 percent, according to ""FHFA's House Price Index."":http://www.fhfa.gov/webfiles/16088/MayHPI2010PR72210F.pdf The index now sits 12.3 percent below its April 2007 peak.

For the nine census divisions, seasonally-adjusted monthly price changes ranged from a 0.6 percent decline in the East North Central Division to a 1.8 percent jump in the Pacific Division.

The 12-month change was also varied. The largest increase was seen in the Pacific Division, where the index jumped 3.8 percent from May 2009 to May 2010. And the South Atlantic Division posted the most notable decrease, as prices plummeted 3.7 percent over the 12-month period.