The S&P Case Shiller Home Price Index released today shows that the home prices continue to decline in many parts of the country. In the 20-city index the median price for homes dropped .1% in February and remained basically unchanged into March. These small short-term decreases add up to a 2% decrease in home prices during the first quarter of 2012. While the losses are not as dramatic as those that were seen in 2006 and 2007, the median prices in most of the major cities surveyed were the lowest seen since before the crisis.
Chairman of the Index Committee David M. Blitzer states that while there have been improvements in certain regions, overall the housing prices have not yet turned around. He goes on to explain that at the end of the first quarter 2012, the national composite is still down more than 35% than at the end of the second quarter 2006. Even though the index was basically flat for March, this is good news. There have been 6 consecutive months of declines, so when prices are unchanged, it actually represents an increase from the previous report. However, home prices are still about where they were 10 years ago in 2002. Home prices have a long way to come back if they are to reach pre-crisis levels.
Investors watch the Case Shiller HPI closely. It is a measure of consumer sentiment where people will speak with their money. Unlike the consumer sentiment that polls consumers about how they feel this is a measure of how they act. By being unwilling to spend more on houses, consumers are showing that they still are wary about housing prices. While the rest of the economy has a positive outlook, the housing market is still on shaky ground.
As home prices continue to decline, homebuyers are seeing affordability increase. Mortgage rates are at all time lows, and the homes are priced as they were in mid-2002. Anyone in the market to purchase should get started on learning what goes into a home loan and how to shop for a house. While the Fed has indicated that rates will remain low through 2014, there is no guarantee home prices will also remain low.
The Case Shiller Index is a monthly report that tracks the median home prices for 20 large metropolitan areas across the country. The index shows the change in home prices from one month to the next and is considered the leading indicator of home prices and the future of home prices.