Sales of new and existing homes up nationwide
“House Prices Rise Across U.S.” That was the headline in the Wall Street Journal (July 29, 2009) following the release of the latest S&P/Case-Shiller House Price Indices. This month’s data certainly looks different:
• House prices rose an average of 0.5 percent compared with last month’s (April 2009 – May 2009) price levels.
• This is the first increase after 34 consecutive months of decline (since July 2006).
• Although the year-over-year decline (May 2008 – May 2009) was 17.1 percent, this is the second straight month that the rate of decline has diminished.
• Of the 20 cities in the index, 13 reported higher price levels and two were flat. Only Las Vegas, Phoenix, Miami, Seattle, and Los Angeles were lower.
Some observers suggest that a fundamental change is underway in housing markets. “This could be an indication that house price declines are finally stabilizing,” notes David Blitzer, chairman of the S&P committee which manages the Case-Shiller numbers. (CNNMoney, July 28, 2009) Mark Zandi, chief economist at Moody’s Economy.com, observes: “It feels like the cycle is winding down.” (CNNMoney, July 28, 2009) Even the somewhat bearish Bob Shiller is quoted as saying, “The change in momentum here is very significant.” (WSJ, July 29, 2009)
This news comes on the heels of other good housing news: sales of new and existing homes are up nationwide (11 percent and 3.6 percent respectively) for the third consecutive month. Housing starts were up 3.6 percent in June and builder sentiment is rising.
So what are we to make of this sudden shift? It can be tempting to jump to unwarranted conclusions. Caution is definitely required.
I believe that the nationwide upturn in house prices is a significant signal that if the bottom hasn’t been hit, it will soon. But – and this is important – you need to be cautious in making predictions based on a few month-to-month changes. Remember, the annual price decline is still significant and is expected to continue to decline over the months ahead. months ahead.
Foreclosure sales have declined, in part because many lenders have agreed to keep some properties off the market to attempt to stabilize prices. If successful, this will be a short-lived victory. There are still millions of Alt-A and Option ARMs about to be reset over the next several months. These will doubtlessly add to the foreclosure experience.
Unemployment is expected to rise to double-digits soon and despite rhetoric to the contrary, job creation is proving to be problematic for government policy-makers. This factor will ensure that any economic recovery will be quite slow and very moderate.
Finally, swirl all of these (and other factors) together and what do we get? House prices will likely continue to decline a bit longer, even if the end is in sight, to be followed by an extended period of “no growth” in property values. Stay tuned!
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Austin Jaffe, Ph.D. is PAR's Consulting Economist from the Smeal College of Business at Penn State University. |
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