Some analysts took those Case-Shiller numbers we dismissed as horrible and found something to get excited about: The month-to-month rate of price decline has slowed. (The year-over-year rate of decline, the one we focus on, accelerated.) We tend to think this uptick is noise, but at least it’s happier noise.
This doesn’t mean, of course, that housing is “bottoming”–just that the rate of decline is finally decelerating. This would be the first step in a gradual bottoming process, which will still likely take at least a couple of quarters (if not years).
Northern Trust’s Paul Kasriel, the “eContrarian”:
The Case-Shiller Composite 20 house price index dropped at an annual rate of 18.5% seasonally
adjusted (by me) in April compared with March. This was a relatively sharp slowdown in the rate
of descent as the March month-to-month annualized decline was 24.2%. On a year-over-year
basis, this house price index descended at its fastest rate to date, 15.3% vs. 14.3% in March (see
Chart 4). If, in fact, the slowdown in the rate of price decreases on a month-to-month basis is
signal, not noise, then perhaps we are nearing an inflection point in house prices. That is, the trend
in house prices will still be down for months to come, but the rate at which these prices are
declining might be moderating. This would be “less bad” news for households and for holders of
home-mortgage-related debt. But before these mortgage holders pop the champagne corks, keep
in mind that the Case-Shiller home price index screens out foreclosure auction sales (hat tip on
this point to Eugene Xu of Deutsche Bank Securities via Michael Nicoletti, an independent
housing market analyst). Also keep in mind, as can be seen in Chart 4, that the month-to-month
changes in the price index are “noisy.”
The FT, meanwhile, adds a theory for why the monthly numbers have showed an uptick…and why they’ll soon start heading back down:
Optimists, however, see two reasonably hopeful signs. First, the rate of decline has slowed, with April’s monthly drop in the index of 1.4 per cent comparing relatively well with March’s 2.2 per cent fall. Second, eight cities actually managed a monthly gain.
On closer examination, such hope dissipates. Case-Shiller’s data are rolling averages, so April’s numbers will reflect prices agreed in February and March – when mortgage rates had eased. Since April, rates have climbed steadily and terms have tightened, so May’s reading could see the rate of decline accelerate again.
The regional story is also less inspiring. Of the eight cities that recorded a monthly increase, half had not enjoyed the dramatic run-up in prices seen elsewhere anyway – Cleveland’s index, for example, peaked with a gain of a mere 23 per cent against Miami’s 181 per cent. Similarly, four of the eight cities were among the last to peak, having hit highs within the past 12 months (the index as a whole peaked in July 2006).
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