Case Shiller Reports - Another Glimmer of Hope Or Fool's Gold?

For the first time since 2006 I'm able to report that home prices in the Case Shiller 20-city index have improved month over month. Yes, you've read that correctly. In addition to the increased home sales for June, increases in the median home price, also this past June, Case Shiller now tells us that pricing may be stabilizing.

According to the Wall Street Journal "most Wall Street economists who discussed the survey focused on the April-to-May rise, saying it represents a significant change in direction. Home prices in 15 of the 20 areas in the survey rose or remained stable." The stats were somewhat unexpected, surprising the study's co-creator Robert Shiller himself. In the same WSJ article Mr. Shiller states "The change in momentum here is very significant." The Journal goes on to say "Mr. Shiller forecast sustained home-price declines into the next few years, which he said now looks less plausible. He said he expects home prices to remain near current levels for the next five years."

Although Los Angeles wasn't a winner, many cities seem to be benefiting from price levels which induce investors back into the marketplace, low down payment government insured loans, and tax incentives that entice home shoppers continue to entice shoppers to jump in.

But it would be foolish to assume all is well as many key issues continue to haunt the housing markets. In a recent LA Times article Maureen Maitland, vice president of index services at Standard & Poor's cautioned, "in terms of a sustained recovery, we're not out of the woods yet, What we need is for this to continue for quite a few months." The National Association of Realtors reports that 31% of all home sales in May and 33% in June were either foreclosure sales or short sales. Unemployment rates are still incredibly high and according to Mr. Geithner this morning jobless claims may not peak until the second half of 2010.

Clearly we have not seen the end of the housing slump, yet the summer of 2009 has given us signs of what the bottom may look like once we've resolved our unemployment issues and worked through the mounting mortgage defaults looming before us. Los Angeles prices are 42% below their peak in 2006. By reaching that level buyers have shown their willingness to buy. Further enforcing current price levels, investors have jumped into the market full force buying properties for the income it generates, or at wholesale levels willing to cure physical and financial defects so they may return the asset back to market ready for retail home buyers.

For me the most promising signals include the return to fundamental investing and prudent home buying decisions. The market is clearing the system of speculation and artificial means which over inflated demand and drove prices to the ethers. The investors that remain have large sums of investment capital and a working strategy for distressed markets. Home buyers with verifiable income are qualifying for fully documented loans and in many cases are buying with significant down payments.

Two things we can all agree on are 1) things are bad and 2) they will get better. If buying decisions are made in difficult times, with prudent and conservative projections on growth, new investments should have staying power. You may get lucky now and then, but overall it's a losing proposition to try and time the market. Make your buying decisions expecting no appreciation or even temporary declines. If you buy for investment make sure you can truly add value by physical improvement or by removing distress. If you are buying a home to live in, assume you won't be able to sell for a profit for another five years. Do a rent vs own analysis and make sure you don't stretch too far on your monthly payment (another hint: assume the worst regarding future interest rates).

More simply - Buy smart!


Kali Edwards