Case-Shiller’s Rise Signals Housing Rebound

NEW YORK CITY-A rapidly accelerating recovery it ain’t, yet analysts are taking courage from the latest S&P/Case-Shiller Home Price Indices released Tuesday. The indices showed home prices rose over the three months between July and September, marking the sixth consecutive month of increasing prices. As a result, says David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices, “it is safe to say that we are now in the midst of a recovery in the housing market.”

The 3.6% year-over-year increase in home prices during the third quarter was the biggest quarterly improvement since Q2 2010, S&P said Tuesday. It also exceeded the median forecast of 29 economists polled by Bloomberg, which projected a 3% Y-O-Y The indices are based on a three-month average, and in Tuesday’s report all three headline composites and 17 of the 20 cities tracked by S&P gained over their levels of a year ago, Blitzer says in a release.

Patrick Newport, US economist at Lexington, MA-based IHS Global Insights, notes in an e-newsletter that the increases were “broad based,” with the best Y-O-Y showing achieved by Phoenix, where Q3 prices were up 20%. The key reasons for home prices going up, he writes, are “low interest rates and declining inventories of new and lived in homes. Others include investors buying distressed sales in bulk, job growth, and, perhaps, self-fulfilling expectations.”

At the USC Lusk Center for Real Estate in Los Angeles, director Richard Green observes that the single-family market “is gaining momentum and we will see the market continue to strengthen as inventory available for sale continues to decline.” In a statement, Green adds that Case-Shiller is a month behind, “so these results do not reflect the full strength of price movements that occurred in October and so far this month.”

Similarly, Ken Schapiro at Condor Capital Management in Martinsville, NJ points out in a note that in contrast to the “temporary gains” that resulted from the tax credit extended to first-time home buyers in 2009, “this year's recovery appears to be organic and self-sustaining. The average selling price for existing homes has shown even stronger gains, up 11.1% year-over-year in October.”

Schapiro writes that a decline in inventory is one reason, “with the number of previously owned homes on the market declining to 2.14 million in October, the lowest since December 2002.  Further, the current inventory of new homes is at its lowest level since data began being collected in 1963.”

Notwithstanding regional inconsistencies, Schapiro notes that it’s clear that the national housing picture is improving. “Given this, investors’ optimism has already pushed the S&P Homebuilders Index up by over 50% in the past year,” he writes, while retailers ranging from Home Depot to Bed Bath & Beyond stand to benefit from trends that range from an increase in housing starts to a gain in household formation.

In its monthly report, also issued Tuesday, the New York City-based Conference Board cited greater optimism about home buying as part of an increase in the Confidence Index. Just under 7% of survey respondents told the Conference Board that they plan to buy a home in the next six months, the highest figure ever recorded in a survey going back to 1964.