Housing Market Recovery: Too Soon to Tell?

Along with the unemployment rate, we’ve been watching house prices closely. They just eked positive for the first time since December 2006, this morning’s Case-Shiller index indicates:

Positive Home Price Numbers

Every dog has his day, and at last the dirty old hound that is American housing has wagged its mangy tail. The Case-Shiller 10-city index is up 1.6% since February of last year. The 20-city has risen 0.6%. Whooppee!

Can these data be trusted? Sure. No market can rise forever. Neither do markets crash in a straight line. But we aren’t celebrating, not just yet. Neither are the people behind this index:

11 cities of the 20-city index saw year-over-year declines.

“Further,” notes S&P’s David Blitzer, “in six cities, prices were at their lowest levels since the prices peaked three-four years ago. These data point to a risk that home prices could decline further before experiencing any sustained gains. While the year-over-year data continued to improve for 18 of the 20 MSAs and the two Composites, this simply confirms that the pace of decline is less severe than a year ago. It is too early to say that the housing market is recovering.”

This chart might be a better representation of what’s really happening…that year-over-year gain looks pretty silly plotted this way:

Home Price Indices

The real home price index report to watch won’t come out until August. That’s when Case-Shiller will update May prices, the first month since the spring of 2008 that the US housing market was not manipulated by the government homebuyer tax credit.

In all, 1.8 million buyers have taken advantage of these $8,000 free tax credits, at an expense of $12.6 billion to the US Treasury. Those numbers are just through February.

That program is supposed to expire this Friday. The National Association of Realtors (NAR) estimated last week that 44% of March homebuyers would NOT have purchased a home without the credit. That doesn’t bode well for the rest of 2010.

Ian Mathias
for The Daily Reckoning