05.29.2013 1

Is a housing recovery at hand?

By Robert Romano

Is a housing recovery finally at hand, or are we just witnessing a new bubble fueled by unlimited government finance? Or is it none of the above?

Average prices for new homes reached a new all-time high of $330,800 in April, a 15.4 percent increase in a single month, and 34.9 percent off its Jan. 2009 low of $245,000.

But before you run off to start flipping houses on borrowed money, do not miss the giant grain of salt in the room.

The broader Case Shiller home price index, which includes prices for new and existing homes, has only seen a 10.8 percent increase through March since hitting its low in Jan. 2012. To be fair, its data for April 2013 has yet to be published, and could perhaps show a significant spike in prices across the board.

But then again, probably not. The Case Shiller index has never since its inception measured a 15.4 percent increase as seen in new home prices in a single month. It only increased 1.1 percent in March.  It would be uncanny if the April numbers showed a larger spike.

In contrast, the new home sales average price published by the U.S. Census Bureau has been extremely volatile since the housing downturn began. Just in March, it had experienced an 8.8 percent drop in the average price for a new home.

April’s new home sales numbers could simply indicate that in some regions wealthier buyers took advantage of relatively low prices for higher-end homes. Or perhaps FHA-insured and VA-guaranteed loans for new homes simply took a dip, while conventional loans increased.

The disparities between the two indexes are most pronounced when one considers that while new home prices are seemingly hitting new highs, Case Shiller remains 26.5 percent below its April 2006 high. Critically, 10.4 million homeowners remain underwater on their mortgages to the tune of $628 billion, reports CoreLogic.

Moreover, in April, new home sales only registered at 454,000 units sold on an annualized basis — some 31.5 percent below the historical average of 663,000 going back to 1963, and a whopping 65.8 percent below its March 2005 peak of 1.328 million.

By historical standards, this is a relatively low volume market for new home sales.

Adding doubt we are in a recovery, the number of homes owned dropped in the first quarter of 2013 by 698,000 to 74.5 million, according to data compiled by the U.S. Census Bureau, indicating that home ownership is actually declining.

All this, after the government has pumped more than $1 trillion into the U.S. housing market via the Federal Reserve, Fannie Mae, Freddie Mac, and through the Troubled Asset Relief Program (TARP).

Overall, with so many Americans still upside down on their homes, it is therefore premature to declare we are in the midst of a robust housing recovery, let alone a bubble, based merely on average prices evident in a low-volume market for home sales. It’s too soon to tell.

Robert Romano is the Senior Editor of Americans for Limited Government.

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