Have US house prices hit the bottom?

Hopes are high that US house prices have finally troughed. In seasonally adjusted terms, the Case-Shiller index reported its strongest quarterly gain in two and a half years between January and March. Another index from CoreLogic showed a third successive monthly price increase in April. The median price of previously owned houses is up 10.1% year-on-year, says the National Association of Realtors. Sales of existing houses are at their highest annual rate in two years.

What the commentators said

“Don’t pop the champagne just yet,” said Jeremy Torbin in Canada’s Globe and Mail. But there’s no doubt the Case-Shiller index hasn’t looked this healthy since it was artificially boosted by a government tax credit in 2009. So it looks as though it could finally be embarking on a recovery without official help.

A housing rebound would help cement the stuttering economic upswing. Subdued or falling house prices temper consumer confidence and spending, in turn hampering “the demand that companies need to see before they increase hiring”.

The “foundations for a sustainable housing recovery are in place”, reckoned Capital Economics. On the demand side, housing hasn’t been this cheap for 35 years: it is around 25% undervalued relative to incomes. The gradual improvement in the economy, notably in the labour market, is helping. Mortgage rates are at a record low and “a slight easing in mortgage credit” is discernible. Moreover, cash buyers and investors looking for bargains are now key drivers of demand.

Supply has eased to a level consistent with stable prices, added Capital Economics. The end of the moratorium on foreclosure sales by banks, a result of a lawsuit against their foreclosure procedures, presages a rise in supply. But the uptick in demand should help absorb it. Still, widespread negative equity and still-tight credit on the demand front imply only marginal price rises, or a flat market for the next few years. “Any recovery,” said Spencer Jakab on WSJ.com, “will be a far cry from the good old days.”

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