Home prices rose in April, according to this morning’s S&P/Case-Shiller Home Price Index. The index, which is a three month moving average with a two month lag, saw increases of 1.3% from March to April in both its 10- and 20-city indices. The 10-city index is still down 2.2% on a year-over-year basis, while the 20-city index is down by 1.9% for the same time frame. The rate of annual home price declines has slowed since the last report. David Blitzer, Chairman of the Index Committee remarked:
“With April 2012 data, we finally saw some rising home prices. On a monthly basis, 19 of the 20 MSAs and both Composites rose in April over March. Detroit was the only city that saw prices fall, down 3.6%. In addition, 18 of the 20 MSAs and both Composites saw better annual rates of return. It has been a long time since we enjoyed such broad-based gains. While one month does not make a trend, particularly during seasonally strong buying months, the combination of rising positive monthly index levels and improving annual returns is a good sign. The 10-City and 20-City Composites each rose by 1.3% for the month and posted annual rates of return of -2.2% and -1.9% compared to April 2011, better than the -2.9% and -2.6% annual rates seen in March 2012.
“We were hoping to see some improvement in April. First, changes in home prices are very seasonal, with the spring and early summer being the most active buying months. Second, while not as strong and we believe less reliable, the seasonally adjusted data were also largely positive, a possible sign that the increase in prices may be due to more than just the expected surge in spring sales. Additionally, the last few months have seen increased sales and housing starts amidst a lot of talk of better housing markets, so some price gains were anticipated.”
I think that the price increases we are seeing right now are being caused by an artificially low number of homes on the market, a number which is bound to change in the near future. I brought up the following points after last week’s FHFA Home Price Index was published, but I will reiterate them here because I still think they apply:
- RealtyTrac is seeing an increase in foreclosures and foreclosure starts, particularly in judicial foreclosure states.
- Almost a third of the homeowners in the United States with mortgages are underwater. Being underwater is the number one indicator of future default.
- Nobody really knows how much shadow inventory exists, but estimates range from somewhere around 1.5 million homes to 10 million homes, and these homes are going to eventually come to market.
- The jobless situation has not really improved in the past years. Unemployment is still really, really, high, and the economy is showing signs of fading.
- The household formation rate is very low, and falling quicker than it has in 40 years. Not as many young are in a position to start families and/or buy homes.
- The student debt burden recently rose over one trillion dollars. This is one of the biggest reasons, along with unemployment that household formation is so low.
- 2.8 million Americans are 12 months or more delinquent on their mortgages.
Given all of these factors, I do not see how home price declines do not being anew in the next couple of months. Despite the calls of a housing bottom or recovery, I do not think a turnaround is imminent. I hope I’m wrong, but I kind of doubt it. These price increases remind me of when prices increased during the first time home buyer tax credit in that I don’t anticipate they will be lasting.