Rising home prices indicate signs of recovery

U.S. home prices rose in August for the third straight month, indicating housing recovery after a steep three-year decline. But, will it last?

The Standard & Poor's/Case-Shiller home price index shows a dramatic turnaround. For three months straight--June, July and August--home prices in 15 metro cities were on the rise. San Francisco, Minneapolis and San Diego led the turnaround.

However, prices are still extremely low compared to 2006. For example, an Associated Press article reports that Miami's prices have climbed for three months in a row, however they're still only half the price of an average price for a Southern Florida home in 2006.

What does this mean? Zach Pandl, an economist at Nomura Global Economist believes prices are still destined to bottom out before they begin to recover for good in 2010.

"We need to see flat to rising prices in the winter months," Pandl says. "That would be a very encouraging sign that prices have bottomed out." This is likely to be true. As foreclosures and unemployment rise, and a tax credit for first-time homebuyers expires next month, home prices may fall once again.

An expired tax credit due next month has caused congress to consider prolonging the tax credit into next year. An increase of the credit is in the works as well. The increased tax credit will help first-time buyers, by saving them 10 percent of the sales price, up to $8,000. What's backing supporters? This month of October, the U.S. economy has declined once again, and the Consumer Confidence Index fell 6 points from September, now down to its lowest level since May.

Although the rising home prices are widespread, they're certainly not everywhere. Seattle, Las Vegas and Charlotte N.C. have fallen to their lowest levels since August. The largest feast-to-famine city? Las Vegas. After the city's peak in August 2006, home prices have since fallen 56 percent.

$12.3 billion fund closed by Boston-based Putnam

Boston-based Putnam Investment just closed its $12.3 billion market fund to limit losses to its investors according to a Washington Post report.

Officials at Putnam say that they would transfer assets to a fund managed by Pittsburgh-based Federated Investors Inc.

An interesting point to note is, the money-market fund is open only to institutional investors with a minimum commitment of top dollars. The current financial turmoil triggered jittery investors to reign in their investments.

As an offshoot of that effort, it caused a large number of redemptions. Putnam thought that it was in the best interest of all the stakeholders to, spread the losses equally, thus forcing them to close the fund.

The cause for concern is that the money-market fund is considered by many to be a safe bet, akin to holding a secure bank account. Putnam may not be the only money-market fund that is surprised by these development.

The article mentions that by mid-September there were many investors who pulled-out about $80 billion from these funds. So there may be many other fund managers who are fretting over their assets. This would indirectly effect the banking sector and other industries, as they depended on the money-market fund to raise easy capital.

Historically, money-market funds have always attracted highest rating from bodies like Standard & Poor and Moody's. So much so that this is only the second time in history that money-market funds have caused losses to investors.

Though the independent investor has little to worry, it might be a cause for concern for the investment community at large.