Positive Numbers For Home Prices May Be Short Lived

Despite positive numbers for the S&P/Case Shiller Home Price Indices that show monthly and annual improvement, some analysts think that seasonal effects and tax credits have a lot to do with the price increase. Without these stimuli, home prices may bounce around the bottom in the near term. See the following post from Expected Returns.

From Standard and Poors:

Data through May 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual growth rates in 15 of the 20 MSAs and the 10- and 20-City Composites improved in May compared to those reported for April 2010. The 10-City Composite is up 5.4% and the 20-City Composite is up 4.6% from where they were in May 2009. While 19 MSAs and both Composites reported positive monthly changes in May over April, only 12 of the MSAs and the two Composites saw better month-over-month growth rates in May than those reported in April.

“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level. The two Composites have improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat.”

The Case-Shiller 20-City Composite index rose 1.2% in May. From last month, 19 out of the 20 cities saw price increases. Year-over-year, 13 out of the 20 cities are showing improvement. But remember, this is with the assistance of two tax-credits. The hangover effect is just starting to set in.

Seasonal Factors

“The May 2010 data for 15 of the 20 MSAs and the two Composites show an improvement in annual returns compared to April’s report. With the month-over-month data, while 19 of the 20 MSAs and the two Composites were positive, we are in a strong seasonal period for home prices, so that was largely expected. In addition, there may still be some residual impact from the homebuyers’ tax credit, since they affect any purchase that closes through June 30th 2010. We need to watch where the housing markets will go after these temporary stimuli go away. June’s existing and new home sales and housing starts data do not show much real improvement in those statistics either. It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

Case-Shiller housing data lags behind other housing data. Recent data for new and existing home sales suggest that future Case-Shiller reports will disappoint. We are simply bottom bouncing at this point, and the risks are all to the downside.

This article has been republished from Moses Kim's blog, Expected Returns.