Latest Case-Shiller Report Slips In The Word 'Recovery'

by: Todd Sullivan

I did not see anyone point this out yesterday (doesn’t mean they didn’t, just that I did not see it).

Here is the section (emphasis mine):

“While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery. Eighteen of the 20 cities and both Composites are showing that home prices are still below where they were a year ago. The 10-City Composite is down 3.7% and the 20-City is down 4.1% compared to July 2010. Continued increases in home prices through the end of the year and better annual results must materialize before we can confirm a housing market recovery.

“As with May and June’s reports, we saw some unusually large revisions across some of the MSAs. In particular, Detroit was most affected in July, with the revisions showing a much healthier market than previously thought. Our sales pairs data indicate that this market reported a lot more sales in May and June, which caused the revisions. As we have indicated before, when sales volumes are relatively low and the ratios of distressed-to-non-distressed sales are changing rapidly, revisions are more noticeable. These factors likely contributed to the revisions we saw not just in Detroit, but in many of the MSAs over the past few reports.

“Other recent housing statistics show that single-family housing starts were down slightly in August, and are about 2% below their year ago level; and these levels are at 30-year lows. Existing-home sales, however, were up in August and are about 20% above their August 2010 level. The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates, a two-year trend. However, if you look at the state of the overall economy and, in particular, the recent large decline in consumer confidence, these combined statistics continue to indicate that the housing market is still bottoming and has not turned around.”

Recovery? When is the last time you heard that in regard to housing. If fact, there was NO mention of a “recovery” in the August report (click here to open pdf of August Case-Shiller). In fact the August report was a bit skeptical about what was happening. They said:

“This month’s report showed mixed signals for recovery in home prices. No cities made new lows in June 2011, and the majority of cities are seeing improved annual rates. The National Index was up 3.6% from the 2011 first quarter, but down 5.9% compared to a year-ago,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Looking across the cities, eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities – Las Vegas, Miami, Phoenix and Tampa – as well as the weakest of all, Detroit. These shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together.

Upward revisions to previous data keep coming in and that has lead to the change in tone (revisions are due to the timing of recording of sales deeds). Because of that, now we are seeing verbiage like “a much healthier market than previously thought”.

Also of interest is that existing sales up 20% over August 2010. That is clearing the backlog of inventory. We know new home construction is basically at a standstill, so we now know there are buyers out there who, since new homes are scarce, are buying occupied homes. This is very good.

I am not calling for an upward shot in the housing market from here either. I could easily see us bouncing around here for the next 6 months or so and that is ok. Even a stable market will entice potential buyers off the sidelines as they will begin to come to the conclusion “the bottom is in”. What I am saying, and have been for the better part of about a year now is that housing is bottoming and getting healthier and that the feared “double dip” or “next shoe to drop” that people have been running around screaming about for the better part of a year is more unlikely to materialize as each month passes. It is also worth noting that this is happening with government policies that are acting to thwart a healthy housing market. As long as the government does not try to meddle in the market more, we’ll be ok. If they just get out of it, things could get a lot healthier real quick.