Case Shiller: Housing Recovery Hoorah! (Or Is It a Decline?)

Once again, the news from the latest Case Shiller Home Price Index is all over the map. Home prices are up for the year! Home prices are down for February! Seasonally-adjusted home prices are up!

Here's what's really going on: Standard & Poor's Case Shiller Index has been flat since last fall.

Over the last three years, the index has moved boldly almost every month, rising or falling by several points or well over 1 percent.

But after the brief recovery in home prices last summer, the index has barely moved since September.

Changes to home prices have become so tiny that indicators like Case Shiller have become like Rorschach inkblots -- journalists and economists can see whatever they want in them, if they squint hard enough.
If you want to highlight the end of the housing crash (for now) and fondly remember the price increases of last summer, you'll join the Associated Press and proclaim that: "Home Price Index Shows First Annual Gain in 10 Years." It's true: Over the 12 months that ended this February Case Shiller's 10-city index is up 1.4 percent and the 20-city index is up 0.6 percent. That's the first 12 months in which the index moved up since December 2006. But almost all of that improvement for the index took place last summer, before home prices flattened out.

If you want to write about possibility that housing prices will crash again in what too many bloggers are calling "the dreaded double-dip," you'll point out, with the the L.A. Times and the Christian Science Monitor, that between January and February both Case Shiller's 10-city and 20-city index fell about 1 point, or less than 1 percent.

But, once again, that's small change for Case Shiller, which typically moves more boldly. Also, most of February's losses vanish if you add a seasonal adjustment--the seasonally adjusted 10-city index actually rises. Economists are now unhappy with the government's model for adjusting for the seasons, according to S&P. However, common sense still prevails, and common sense says that home prices are less strong in winter, which makes Case Shiller's slight drop from January to February even less impressive if you're looking for a trend beyond the cold weather.

Unless our economic recovery starts to move a little faster, Case Shiller is likely to continue its weak movements this spring, as growing demand for housing stimulated by the federal homebuyer tax credit is offset by continued high levels of foreclosures.

"It is too early to say that the housing market is recovering....We are not completely out of the woods yet," said David Blizter, S&P's chief economist.
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