House prices continued to improve in July with Standard and Poor’s reporting a 0.9% (NSA) gain in both Case-Shiller composite house price indexes (HPIs). This is the fourth consecutive monthly increase in the Composite 20 (CS20) and Composite 10 (CS10) HPIs, with overall gains of 3.7% and 3.5% respectively since March 2011.

Prices improved in 11 of the 20 cities covered by the index on a non-seasonally adjusted basis (17 cities seasonally adjusted). The greatest improvements were observed in Detroit (+3.8%), Washington DC (+1.5%), Dallas (+0.9%) and Cleveland (+0.8%). Phoenix (-1.1%), San Diego (-0.9%), San Francisco (-0.8%) and Las Vegas (-0.7%) experienced the largest house price declines. Charts that present the historical HPI data for each of the 20 metropolitan areas are available by following this link.

There were some unusually large revisions for May and June across some of the MSAs, with Detroit the most affected. The revisions show Detroit having a much healthier market than previously thought, with price increases of 1.8% (previously reported as -0.7%) in May and 5.6% (+2.2%) in June, and an overall gain since April 2011 of 11.7%.

Standard and Poor’s note that “With July’s data we are seeing not only anticipated monthly increases, but some fairly broad improvement in annual rates of change of home prices.” The annual rate of change improved in both composites and 14 of the 20 MSAs.

Despite this recent improvement, the composite indexes and the indexes for most metropolitan areas remain below their year-ago levels. Only two of the 20 metropolitan areas covered by the index, Detroit (+1.2%) and Washington DC (+0.3%), have positive annual rates of change. All others were down relative to July last year, with Minneapolis (-9.1%), Phoenix (-8.8%) and Portland (-8.4%) faring the worst. However, year-over-year comparison should be considered in context of the home buyer tax credit.  The tax credit successfully stemmed the decline in house prices in early 2009 and supported moderate house price growth through to mid-2010. Subsequently, at the conclusion of the tax credit, house prices experienced an extended (eight month) decline, which gave back much of the tax credit supported gains. Balancing out the rise and fall associated with the tax credit, the overall trends in the composite HPIs were relatively flat from the trough in early 2009 to March of 2011, with most metropolitan areas remaining above the level of their trough in early 2009. The year-over-year comparison covers the extended of decline house prices, thus is unduly influenced by the impact of the tax credit.

The recent improvements in the Case-Shiller indexes, which mirror gains in the Federal Housing Finance Agency HPI, confirm that a recovery in house prices has begun. We expect house prices to remain relatively stable, with no further significant declines, over for the balance of 2011, and anticipate steady, albeit modest, gains through 2012 and 2013.