Housing: Still Soft but Probably Not a Double-Dip

Includes: XHB
by: Calafia Beach Pundit

The release of the March Case-Shiller home price index, which showed the non-seasonally adjusted number falling to a new post-recession low, is apparently confirming the view among many analysts that housing is now in a double-dip. That may be an irrelevant and premature assessment, however, given that the March number reflects the average of prices in the months of Nov., Dec. and Jan. Nevertheless, as these charts show, prices were indeed softening late last year and early this year.

(Click charts to expand)

The top chart shows the seasonally-adjusted Cash-Shiller series, as well as the Radar Logic home price series. Both are telling approximately the same story. The second chart shows the inflation-adjusted version of the Case-Shiller series measuring home prices in 20 major markets, while the bottom chart shows the Case-Shiller series measuring 10 major markets, but extending back to 1987. On an inflation-adjusted basis, home prices on average have fallen almost 40% from their peak.

As to whether housing prices are still declining from their January levels, it's anyone's guess, but I am hearing anecdotal evidence to the contrary, at least here in So. California. Three homes in one neighborhood I'm familiar with sold within days of being listed, one for a price I thought was impossibly high. My nephew, who is a mortgage broker in the Inland Empire, reports that May was his busiest month ever, and he sees evidence of firming prices. Additionally, the chart below is an index of the equities of major homebuilders, and it shows no sign of weakness.

Much has been made of the big May selloff in commodities, but even that appears to have been temporary and not indicative of any economic downturn. The chart below of a diversified index of commodities shows that prices have already recovered over half of their early-May losses. Plus, copper prices have not declined at all in May.

In any event, I would argue that any weakness in housing should be viewed as an opportunity to buy, rather than a reason for despair.

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