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Housing: The Good & Bad News

The monthly S&P/Case Shiller index of home prices in 20 cities showed a 15.9 percent drop from the same period a year ago. Both new and existing home sales indicate that price declines continue, although the severity of the decline seems to be moderating.

Inventories remain stubbornly high -- in fact, new home inventories are at 10.1 months; it has remained over 10 months for four months now.

The real estate news today, from the Case Shiller Index of home prices to new home sales (a bit weaker than expected, when revisions are considered), showed there are still significant strains in housing.

Here's the good news:

--there are some small signs of sales increases in a few markets like central California.

Here's the bad news:

--for the most part, prices at best remain at their bottom, even though the rate of declines appear to be slowing down; and

--inventories remain high.

Much is made that cheaper housing will make the markets more affordable and ultimately help the consumer. There's a problem with this analysis: there's more than lower prices when considering affordability. There's home prices, mortgage rates, and income growth.

Only one of these components are helping affordability now. More declines in prices are good news. But mortgage rates are rising, and income growth is being eroded by inflation, reducing the positive effect of lower prices.

Housing Stocks in the News:

Fannie Mae , Freddie Mac
(Story: Fannie, Freddie May Avoid Bailout)


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