If a picture's worth a thousand words, this will be a really short article.
While the widely followed Case Shiller 20-City Composite Home Price Index show that housing prices are still falling on a year over year basis, some individual cities are decoupling from the overall national trend.
For example, while the seasonally adjusted Case-Shiller 20-City Composite is down 2.56% from a year ago, there's a lot more variation in specific cities - with Phoenix up 6.1%, Chicago down 6.91%, and some cities virtually unchanged (such as Washington, DC).
What's happening is that correlation is dropping - and that's normal, or at least it should be normal. After all, the price of a home in Dallas shouldn't necessarily be correlated to one in Denver, should it?
This chart shows the rolling 24-month correlation of index level changes between specific Case-Shiller City Indexes and the 20-City Composite Home Price Index.
I didn't include a legend because it's not all that relevant to the correlations, which rose to very high levels beginning in 2007. Now the correlation appears to be falling again.
The sign of a healthy housing market isn't that US housing prices rise overall, but that the correlation between cities drops back down to resemble that messy tangled mass of spaghetti from earlier in the decade.
And as correlation falls, following individual city indexes, not the widely followed 20-City Composite, will be more useful metrics for understanding the housing market.