NEW YORK ( TheStreet) -- Though Freddie Mac's ( FMCC.OB) report on Monday showing the largest quarterly home-price increase since 2005 seemed like good news prima facie, the headline number hid a troubling sign for the U.S. housing market. Home prices have only risen twice in the past three years: When the Obama administration unveiled a $275 billion homeowner-bailout program, and when its popular set of tax credits expired. The home-price bumps have essentially been taxpayer-funded bookends to a period of significant decline. Economists are split between a Goldilocks outlook based on affordability and a more realistic one suggesting that home prices may not be buoyed for awhile. >>>Rent vs. Buy Freddie Mac's price index for homes with traditional mortgages rose 3.1% during the three months ended in June. Though prices declined on an annual basis -- and declined even more when factoring in appraisals as well as sales -- the headline number represents the first quarterly price increase in more than a year. In the first quarter of 2009, when President Obama announced the "Making Home Affordable" plan, prices rose 1.1%. According to Freddie Mac, prices rose in all of the country's nine Census divisions. "We saw increases in home values in the second quarter that were very strong across all regions," says Freddie Mac Deputy Chief Economist Amy Crews Cutts. "There is no doubt that some of this was due in part to the now-expired homebuyer tax credits which boosted sales activity as well as to the usual seasonal bump we see each spring."
Cutts acknowledged that, unfortunately, since the end of the calendar second quarter, home sales have essentially fallen off a cliff. In July, new home sales plunged to a 40-year low of 276,000, down 12% from the previous month and 32% from the level in July 2009, according to the Commerce Department. Prices dropped slightly from June, and dramatically from year-ago levels. Existing home sales, which represent a far greater portion of the housing market, fared even worse: The National Association of Realtors reported a 27% drop in sales from the previous month and a 26% drop from July 2009. Prices were essentially flat on a monthly basis, but slightly higher than year-ago levels. NAR's chief economist, Lawrence Yun, predicted more pain ahead. "Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired," he said. "Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September."