Housing’s grind

The latest S&P/Case-Shiller Home Price Indices were on the surface encouraging, showing “average home prices increased by 1.5% for the 10-City Composite and by 1.6% for the 20-City Composite in July versus June 2012″ but let’s put this into context.

Consulting the chart above we can see that first, the indices topped out at 206.64 in April 2006, before dropping to near term lows of roughly 136 in Q1 2006, so with the index tracking at 142.10 we’re still bouncing along the bottom. Second, if we look at the most recent increase it will take almost 40 months to reach the prior highs. In other words, folks that purchased near the 2006 house price highs won’t break even on their purchases for over three years IF house prices continue to rise at current levels.

Will they? Well, US mortgage rates are already at record lows, the American economy is set to grow at exceptionally slow levels through the end of 2013 and in fact some analysts are suggesting the economic growth story is over (warning: this is a controversial paper, but still its an idea worth examining). And as I’ve previously written, the global outlook is pretty grim right now as we start to see recessions all over the planet and, in fact, I kind of suspect the US may already be in or be perilously close to reentering recession.

Of course the wildcard is The Fed with their programme of Quantitative Easing Infinity, which I call it because this time around they won’t stop the pumping until the economy is jumping.

Comments are closed.