October 29th, 2009 10:03 AM by Lehel S.
NEW YORK - Home prices rose in August for the third straight month, a rapid pace of recovery that surprised economists and raised questions about how long the trend can last.
After a steep three-year descent, home prices rebounded this summer at an annualized pace of almost 7percent, the Standard & Poor's/Case-Shiller home price index showed Tuesday. Against a backdrop of rising unemployment and falling consumer confidence, the speed of the recovery stumped Robert Shiller, economist and co-creator of the index.
"It's a time of exceptional uncertainty," Shiller said. "It doesn't seem like a time to see home prices booming, but that's what's happening."
He expects prices will continue to rise for the next few months but can't forecast beyond that, explaining, "There's no way to be a statistician about this."
The Case-Shiller index of 20 major cities climbed 1percent from July to a seasonally adjusted reading of 144.5. While prices were down 11.4percent from August a year ago, the annual declines have slowed since February.
Rising home prices are a key ingredient to rebuilding the economy. Homeowners feel wealthier when their property appreciates in value and are more likely to spend money. Rising prices also help millions of homeowners who owe more to the bank than their homes are worth.
But many economists expect a double dip in prices. Despite signs the economy is recovering, home prices could decline again as unemployment and foreclosures rise and a tax credit for first-time homebuyers expires next month.
Zach Pandl, an economist at Nomura Global Economics, expects prices to fall to the lows reached earlier this year before recovering in early 2010.