Christopher Swann

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Don’t trust the false dawn in housing

June 30, 2009

Economists should not take too much comfort from this month’s Case-Shiller index.

The pace of decline slowed to just 0.56 percent in April. But as last year confirmed, house prices are heavily seasonal. During the busy spring and summer period, the speed of the slide more than halved in 2008.

(Click chart to enlarge in new window)

Seasonally adjusted the slide was 0.9 percent in this month’s data – not awful but less comforting than the headline figure.

In addition to seasonal factors, however, there were one-off influences that may have flattered the April figure. Most notably, April was the nadir in the 30-year mortage rate at around 4.8 percent. (This was down from about 5.9 percent a year earlier.) Since the low point in April, the 30-year fixed rate has climbed sharply. The Federal Reserve so far seems disinclined to step up its asset purchase program in order to take rates back down below 5 percent.

It would not be surprising to see price falls – seasonally adjusted – accelerating again over coming months.

As the unemployment rate climbs towards 10 percent and more workers experience pay cuts, it’s hard to be too upbeat about house prices. So far they are around a third off their July 2006 peak. If all goes well, they may stabilize at around 40 percent below their peak.

(ps Thanks to my colleague Rolfe Winkler for the chart above. They will make a blogger of me yet!)

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