World pins recovery hopes on rising house prices

LONDON: For homeowners around the world struck by the collapse of property markets, figures showing the downward spiral may be halting are the most meaningful signs yet of a possible economic recovery.

As battered banks and stocks rally again, news that US house prices are finally rising after nearly three years of traumatic decline offers the greatest hope to hard-pressed homeowners from California to Krakow.

The sub-prime home loan crisis in America was the pressure-point that exposed underlying global financial chaos -- and many economists say property prices there are the linchpin for confidence in broader economic recovery.

US home sales have been rising and the latest Standard & Poor's/Case Shiller index of home prices in 20 major US cities showed a 0.5 percent increase between April and May -- the first monthly rise since 2006.

"This is the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilising," said Standard & Poor's analyst David Blitzer.

Data from the National Association of Realtors also showed the median price of existing US home sales was 181,600 dollars (127,200 euros) in June -- 15 percent lower than a year ago, but up from 174,700 in May.

Celia Chen, an analyst at credit rating agency Moody's, said there were "tantalising signs that the descent in house prices is at least moderating," but warned that house prices will not reach their 2006 highs until 2020.

Joel Naroff at Naroff Economic Advisors disagreed with that downbeat view, saying the increase "could start increasing much more rapidly than projected."

Analysts remain sceptical on the longer-term outlook for property prices as stable economic growth remains vulnerable to rising unemployment and government strategies for a clean exit from recession after unprecedented fiscal stimulus.

But that is doing little to dampen cautious optimism on property markets.

Official data in China is showing house prices in 70 cities up 0.8 percent in June from May, rising for the fourth straight month, while real estate investment nationwide rose 9.9 percent in the first half of the year.

In Britain, house prices rose by 1.1 percent in July to just under 160,000 pounds (187,600 euros, 267,700 dollars) from June, but were down 12.1 percent over 12 months, a survey from home-loans provider Halifax showed this week.

In neighbouring Ireland, however, prices have fallen by up to 40 percent from their peak in 2006 and are still going down -- with the government now working to provide 90 billion euros in guarantees to the loan market.

Likewise, Spain's second-biggest bank BBVA has forecast that house prices after a decade-long, tourism-fuelled property boom will still fall by nearly 30 percent between 2008 and 2011 before they start to recover.

In the Gulf emirate of Dubai, house prices have almost halved over the past year. The sector there is struggling with a shortage of liquidity and job security for expatriates who represent over 80 percent of the population.

The decline in Dubai has had wider implications, with US bank Morgan Stanley saying world steel production will remain below 75 percent capacity as it awaits a revival in the construction sector in the Middle East.

And, despite the price rises in Britain, China and the United States, IHS Global Insight analyst Howard Archer warns there may be surprises in store.

"We suspect that they will be prone to relapses over the coming months," Archer said, referring to British house prices.

Archer warned houses could become less affordable because of "the economic climate of recession, sharply rising unemployment and slowing wage growth."