Housing bears see signs of calamity in boring Case Shiller report

Yesterday’s release of the latest S&P/Case-Shiller Home Price Index showed that house prices are holding up reasonably well:

Data through October 2009, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately nine months of improved readings in these statistics, beginning in early 2009.

On a non-adjusted basis housing prices were flat. On a seasonally adjusted basis, which is probably the better measure, home prices increased by 0.4%. Some large post-bubble cities continued to show month-over-month home price increases, even on a non-adjusted basis:

San Francisco has reported seven consecutive months of positive returns, San Diego has reported six and Los Angeles and Phoenix are close behind with five.

In short, the latest Case-Shiller report shows that after a big run-up over the last five months, housing prices are now essentially flat. They are rising a bit in some markets and falling a bit in others, but this report was mostly a yawner, showing neither a big decline nor a big increase in prices nationally.

But that didn’t stop various commentators from trying to put a strong negative spin on the numbers. At Seeking Alpha, Cliff Wachtel saw evidence of a brewing calamity:  “Latest Case-Shiller Housing Report and its Ramifications: Seeds of a 2010 Crisis?”

Wachtel’s Seeking Alpha colleague Markos Kaminis had misgivings too: “S&P Case Shiller’s Home Price Index Concerns Me.”

At the Seattle Post-Intelligencer, Gerry Spratt wrote, “Report: Housing prices up, but for how long?” I wonder if Ms. Spratt was equally skeptical of housing price increases when prices were soaring a few years ago.

The Wall Street Journal’s Real Time Economics ran this re-assuring headline in response to the Case-Shiller report: “Economists React: ‘Prices Have Further to Fall.'”

At Public Radio’s Marketplace, the headline-writer managed to write this headline: “Signs of instability in housing prices.” Um, prices rose 0.0 percent. Instability?!?

When I wrote a post last month arguing that housing prices had bottomed, the response I received from our readers was uniformly negative. Clearly a large swathe of the public (including the Inflation Watch readership) does not think the recovery in housing prices is for real. Since markets often surprise the majority of people, the prevalence of bearish sentiment makes me more bullish about the housing recovery.

The last time I saw sentiment on housing prices running so strongly in one direction was 2004-05, when almost everyone seemed convinced that prices in bubble markets would continue to rise at 10-15 percent per year in perpetuity.


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