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Douse your double-dip fears, house prices are actually going up.
At least that’s the contention by Citi analysts in a note published on Friday.
But before looking at their research here’s a quick reminder of the where the S&P/Case-Shiller index stands, courtesy of Calculated Risk:
Zillow data for Q1 2011 indicated a 3 per cent decline compared to Q4 2010.
So why the bullishness?
Contrary to the headlines, more timely data indicates that home prices are actually going up on a m/m basis and have been doing so since February. Such home price data comes from less well-known data sources such as Radar Logic and Altos. To be sure, such price improvements are largely if not exclusively due to seasonal factors and will likely fade in the fall. However, we think this recent price strength has both near-term and long-term positive implications for home prices and stocks which are sensitive to home prices.
S&P/Case-Shiller is a lagging indicator, reporting a three-month average two months after the last month of the relevant trio. Thus, the data released in April is labelled February data but actually refers to home sales closed in December, January and February. These sales, of course, would have involved contracts signed a couple of months earlier.
Radar Logic is more up to date, although assumed to be less important than the S&P/Case-Shiller. It publishes data for a single month — its April data referred to sales closed only in February. There are methodological differences, but Citi says the correlation between the two indices has traditionally been strong:
We note that Radar Logic has consistently reported a little higher than S&P/Case-Shiller, but Citi’s point still stands. And because it turned positive last month (for closures in February) Citi reckons the S&P/Case-Shiller will also turn positive in the summer. Data from Altos for March supports this argument, add the analysts.
So fears of a double dip may be overblown, especially since propping up prices is explicit Government policy. But as the Citi note also indicates, this will still take some time. The foreclosure pipeline and shadow housing inventory will continue to drive near-term prices, even while “fundamental” home price metrics suggest prices are in “equilibrium or even cheap”. Then there’s, um, demand as well — until the labour market accelerates fully it will continue to be a drag on house sales and prices.
And we may be seeing a bifurcation between distressed and non-distressed house prices — a(nother) two-tiered housing market anyone?
Related links: Rent or Buy, a Matter of Lifestyle – NYT Case Shiller: Home Prices near post-bubble lows in February – Calculated Risk US Housing Bubble v2.0 – FT Alphaville
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