Tuesday, July 28, 2009
The May report(.pdf) for the S&P Case-Shiller Home Price Indexes showed the first monthly increase in three years, however, prospective home buyers and sellers should heed whatever few warnings they might hear today about reading too much into monthly data, especially around this time of the year.
"One month does not a trend change make" and this reality is quite easy to see in the chart above where there were many monthly price decreases prior to all 20 cities putting in their price peaks between 2005 and 2007.
For example, after a long string of monthly gains, Portland reported its first monthly price decrease in October of 2006 but didn't reach a peak until the following May - look for a similar occurrence as the beginning of a home price bottom starts to take shape.
From April to May, the 20-city index rose 0.5 percent while the 10-city index rose 0.4 percent, however, you can see in the chart below that there is a strong seasonal component to the data, monthly price changes improving around this time of the year regularly - look for more of the same in next month's report.
Conversely, price declines have their strongest seasonal influence during the winter, so, it will probably take another six or eight months to see another complete cycle for this pattern.
As shown below, both Los Angeles and San Diego have fallen out of the group of cities with annual price declines of 20 percent or more (indicated in blue) while Phoenix and Las Vegas improved only marginally, both maintaining 30+ percent declines as indicated in red.
David M. Blitzer, Chairman of the Index Committee at Standard & Poor's notes:
The pace of descent in home price values appears to be slowing. There is a clear inflection point in the year-over-year data, due to four consecutive months of improved rates of return, after the steep decline that began in the fall of 2005. In addition to the 10-City and 20-City Composites, 17 of the 20 metro areas also saw improvement in their annual returns compared to those of April. Looking at the monthly data, 13 of the 20 metro areas reported positive returns; and the 10-City and 20-City Composites reported positive returns for the first time since the summer of 2006.The next few months of data should be pretty interesting, but, given the seasonal patterns in the second chart above, don't be surprised if home prices disappoint again later this year.
To put it in perspective, these are the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilizing. While many indicators are showing signs of life in the U.S. housing market, we should remember that on a year-over-year basis home prices are still down about 17% on average across all metro areas, so we likely do have a way to go before we see sustained home price appreciation.