Case-Shiller Numbers Suggest “Firming” Housing Market


The Case-Shiller housing index came out this morning (August 28), and as expected, the numbers for June are reassuring. For the last few months, prices have been rising in the 20 metropolitan areas covered by the index and with June’s rise, prices are now up, on average, year-to year, in most of these markets.

Making Sense Today’s prices are higher than those of a year ago everywhere but Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego. It has been widely reported, though, that Case-Shiller may understate the housing rebound since the measure they use, actual closings in June, reflect prices agreed to earlier and wouldn’t capture a fast run up. In any case, more signs of “firming” (I love that word) in the housing market.

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I spent yesterday traipsing around Charlotte, North Carolina with liberal economist Jared Bernstein, former adviser to Vice President Biden. The Democratic convention will take place in the “Queen City” next week; Bernstein was playing tour guide to the Democrat’s economic platform, as Douglas Holtz-Eakin had been in Tampa for the Republicans last week.

Bernstein made the case at various locations around Charlotte, including the NASCAR Hall of Fame, as you’ll see this Friday on the NewsHour. But with regard to housing, one offhand comment while in transit seems timely today. I didn’t jot down his exact words, but what Bernstein said, roughly, was that the rise in housing prices over the past year was putting a floor under the economy. He estimated that one million homeowners who were “underwater” last year are above water today. In other words, just 12 months ago, they owed more on their homes than the homes were worth and many were tempted to walk away – to “strategically default,” as we illustrated in a story in 2010 and I discussed here in April

Prices not adjusted for inflation.

Today, these million or so homes have increased in value from a year ago to the point that their owners now possess positive equity – an actual ownership stake. That suggests the homes won’t be forced onto the market anytime soon. The fewer the homes for sale, the further that prices can be expected to inch up.

But more important, to Bernstein, is that homeowners with positive equity can now refinance at today low rates. He mentioned a friend who lowered his interest rate substantially by refi-ing as soon as his long-underwater home bobbed above the surface. It’s an automatic stimulus package and the more home prices rise, the more stimulus there should be.

Homeowners can show lenders that they’ve again got skin in the game; lenders then compete to refinance them; monthly costs drop; homeowners spend some or much of what they’re saving in monthly payments. Today’s Case-Shiller numbers indicate that virtuous circle might even have sped up some in July. And, as noted above, they may understate the turnaround.

Interactives by Justin Myers.