Tuesday, May 4, 2010

Case-Shiller--Home Prices Still Rising

This could be the year real estate begins to recover in earnest—at least in some regions. It is no surprise that states with the biggest real estate bubbles—such as Nevada, California, Arizona, and Florida—will take the longest to recover. On a year over year basis, the February S&P Case-Shiller same-home 10 city index is now up 1.4 percent from last February and the 20 city index is up 0.6 percent. This is the first time since December 2006 that both annual rates of change for the two composites have been positive.

But month-to-month prices decreased (SA) in 15 of the 20 Case-Shiller cities in February, mainly because the March surge in both new and existing-home sale will be in next month’s numbers. David Blitzer, Chairman of the Index Committee at Standard & Poor’s says:"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”

“Existing and new home sales, inventories and housing starts all show tremendous improvement in their March statistics,” he continued. “The homebuyer tax credit, available until the end of April, is the likely cause for these encouraging numbers and this may also flow through to some of our home price data in the next few months. Amidst all the news, however, we should also pay heed to foreclosure activity, which have reached their highest level in at least the last five years. As these homes are put up for sales, we may see some further dampening in home prices.”


Both existing and new home sales jumped in March ahead of the expiration of special tax credits for homebuyers at the end of April. New home sales in March surged 26.9 percent to a 411,000 annual rate, bumping up the year-ago pace to up 23.8 percent from down 8.5 percent in February. The boost in sales whittled supply down and to 228,000 units from 233,000 in February. Relative to sales, homes on the market eased to a 6.7 months’ supply from 8.6 in February.


Existing home sales also gained in March but not as strongly as did new sales. Existing home sales rose 6.8 percent to an annual rate of 5.35 million from February’s 5.01 million. Gains were evenly distributed across regions. For the U.S., the year-ago pace improved to 16.1 percent from 6.8 percent in February.


Supply fell back to 8.0 months from February's 8.5, and the median price rose 3.7 percent to $170,700 with the year-on-year pace at 0.4 percent. First-timers were 44 percent of total sales, up 2 percentage points from February.

What about future activity? Both the Conference Board’s Leading Economic Indicators (LEI) and Consumer Confidence Indexes rose sharply in March, signaling strong growth overall this year. The Conference Board's LEI surged 1.4 percent in March, following a 0.6 percent increase the month before. Manufacturing gave the index a big boost with major contributions coming from a significant lengthening in the factory workweek and greater slowing in deliveries, ones that are likely to extend into the April report given continuing signs of strength from the sector.

The financial sector added significantly to the composite gain with sizeable contributions from the interest rate spread and stock price increases. Building permits are also a major positive for March and indications here, based on a big jump in the home builder index, are also positive for April.


The slide seen in the mid-month consumer sentiment index is not at all confirmed by the Conference Board's consumer confidence report which rose strongly for a second straight month, up about 5-1/2 points in April to 57.9. The gain is centered in expectations which jumped 7 points to 77.4, reflecting rising optimism over the outlook for business conditions and easing pessimism on the outlook for employment and income.


Just released minutes from the last Federal Open Market Committee meeting (that sets Fed policy) sounded more confident, also. It said,“Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level.

While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

Harlan Green © 2010

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