U.S. home prices have reached a bottom and may be set to rise in the first half as buyers take advantage of increased affordability, said Karl Case, the economist who co-founded the S&P/Case-Shiller home price index.
“Prices have gone flat, bouncing around at what I think is essentially a bottom,” Case, a retired professor of economics at Wellesley College, said in a radio interview today on “Bloomberg Surveillance.” “We’re really going to have to wait to see what the spring market brings.”
The S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from a year earlier, the biggest 12- month decrease since December 2009, the group said today in New York. The Federal Housing Finance Agency, which measures sales financed with mortgages backed by Fannie Mae and Freddie Mac, said separately that prices slid 4.3 percent from November 2009.
An abundance of inexpensive homes and an expanding economy will support housing demand as it enters the so-called spring selling season when the bulk of transactions typically occur, said Case, who created the price index with Yale University Economics Professor Robert Shiller. The National Association of Realtors’ affordability index, a gauge of median income against home prices, reached an all-time high of 184.5 in November.
Shiller presents an interesting argument, although I disagree with his conclusion. Most economists do as well, according to a story in the Financial Times, which notes this is the fifth consecutive month with a drop in home prices. I recently looked at the Beige Book's real estate section and came to this conclusion:
Overall, housing is still a basket case. However, the incredibly low level of inventory gives home sales the opportunity to pick-up quickly and boost the economy should demand pick-up in a sharp way.
The short version is new home inventory is very low, but the existing number of homes is still high. To a certain extent, existing homes are a substitute new homes, but only at the lower end of the price spectrum. In essence, there is still a ton of inventory for the market to clear and that does not bode well for prices in the short or intermediate term.