Left: Four S&P/Case-Shiller Home Price Indices — Percent Change From a Year Ago
Right: Two S&P/Case-Shiller Home Price Indices — Index History, Reported Monthly
The tax credit certainly worked as intended to bolster home sales. Existing and new home sales, inventories and housing starts all showed big improvements in March and April — all the categories, that is, except home prices, which continued their month-to-month decline in most of the country. Two metro markets reported seven consecutive months of price decline. The Boston metro area was one of four to show six consecutive months of decline.
Nevertheless, on a year-to-year basis, price data was up in many areas, suggesting not that the housing market is improving, but rather that the rate of decline may be slowing.
Foreclosures and unemployment are the two reasons most frequently cited by economists for the continuing monthly decline, coming after four months of upbeat news.
But there may be another contributing factor. Home sellers found themselves in a race to the bottom. Fearing they would be left out of the buying frenzy in the months leading up to the April 30 tax credit deadline, they cut their prices, and cut them again.
If, in fact, this was the case, we could see a little “bounce” in home prices in the months ahead, as sellers find themselves freed of the deadline pressure. Continuing low interest rates could help as well, a gift from investors fleeing the troubled euro for the relative safety of U.S. Government securities.
The home price trends cited here are from the latest, February report of the closely watched S&P Case-Shiller Home Price Index.
Among the witches brew of home sales statistics and prognostications to which we are treated every month, no indicator provides a better signal as to the health of the housing market, I believe, than this redoubtable index.