U.S. Housing Market: The Evidence Continues to Mount That We're Past the Bottom

The Economist -- "In unsurprising but good news, Case-Shiller reported new home price data this week that showed a definitive upward move in markets across the country. From March to April, Case-Shiller's 10- and 20-city indexes rose 0.7%, seasonally adjusted. All but three of the tracked markets saw month-on-month increases. Half of tracked cities notched year-on-year price increases in April.

Price rises have looked imminent for some time. Sales figures have been trending upward and inventory numbers are at remarkably low levels. Rents have also been increasing, making home purchases look ever more attractive. There is still an ample stock of distressed and bank-owned homes to work off, but America seems to have achieved bottoms for both sales and prices. Housing markets have adjusted.

This turning point could be a source of considerable strength for the American economy. Rising prices should have a direct wealth effect for owners and should sharply limit new defaults and foreclosures. As a result, mortgage lending should begin to look much more attractive. A return to something like normal lending conditions could turn fledgling increases in sales and construction into strong increases, boosting GDP and construction employment."
 
MP: The top chart above shows the monthly FHFA House Price Index (HPI) through April, based on the purchase prices of houses financed with Fannie Mae or Freddie Mac mortgages.  The April index was 3% above its year-ago level, and 3.3% above what is apparently the cyclical low point for the HPI in March of last year.  The 3% annual gain in the HPI was the largest yearly increase since November 2006, five and-one-half years ago (see bottom chart).

This FHFA index of national home prices is more comprehensive geographically than the major metro-area based Case-Shiller index, and includes both small cities and major cities like Houston (not one of the 20 metro areas in Case-Shiller), where median home prices in May reached a new record-high level.  The HPI is also available now for the month of April, whereas the most recent Case-Shiller index is a three-month average of February-April.

Bottom Line: The evidence continues to mount that we've passed the bottom of the U.S. housing market, as we continue to see strong sales gains for new and existing homes, a two-year high for pending home sales, and gradual increases in home prices.  Look for more improvements in the real estate market going forward through the rest of the year.