The S&P/Case-Shiller Home Price Index for April 2011 was released earlier today. It brought some good news, as well as some bad news. Can you guess which one the media will run with?
The Good News – Home Prices Up at the Monthly Level
Surprisingly, home prices rose in all 20 of the metro areas that are tracked by the report. In April, the 20-city composite rose 0.7 percent over March 2011. This is the first time in eight months that prices have risen across the board.
David Blitzer, chairman of the committee that produced the pricing index, explained that the uptick may only be seasonal. “[M]uch of the improvement reflects the beginning of the Spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.”
Still, this news may come as a surprise to the economists and housing experts who have already darkened their predictions for a housing recovery. In March 2011, MacroMarkets sent a home-price survey to 111 economists and housing-market experts. The results did not inspire confidence. Most of the respondents did not expect any significant recovery in the housing market until 2013.
According to Robert Shiller, co-founder of the Case-Shiller Home Price Index: “The U.S. housing market outlook continues to deteriorate. Now [the survey respondents] are expecting only a weak recovery, and even that is not until 2013.”
Related story: 4 Reasons the Housing Market Still Stinks
At the monthly level, this latest report would seem to contradict their pessimism. Granted, a one-month increase in home prices does not indicate a full recovery. But it’s still a good sign, right? In some ways, yes. But not when you consider the annual trends…
The Bad News – 4% Decline Over Last Year
The bad news is that home prices dropped significantly in the annual category. Prices were down 4 percent in April of this year, when compared to April 2010. This marks the biggest year-over-year decline since November 2009. So when you look at the data from a wider lens, it certainly does not speak of recovery.
Despite the one-month rise in home prices reported today, the biggest questions remain: When will prices hit bottom in most areas? How long until we experience some sustained appreciation in the housing sector?
Related survey: Consumers don’t expect a housing bottom in 2011
Breaking the Vicious Cycle
Excessive inventories put downward pressure on home prices. Falling prices make would-be home buyers more reluctant to make a purchase. The lack of demand pulls prices down even further. It’s a textbook “vicious cycle,” and it probably won’t end for some time.
As long as we have a high rate of foreclosures, the cycle will continue. The glut of foreclosure homes has been the talk of the town for months. It’s not the only factor depressing the housing market (unemployment is also taking a toll). But it is one of the most significant factors.
But any signs of price stability, however dim, will bring more buyers into the market. This will make the supply-and-demand picture more balanced than it has been in the past.