For the first time in three years, the S&P/Case-Shiller Home Price Index rose quarter to quarter, 2.9 percent, although it's still down nearly 15 percent year over year.  While all the news headlines were screaming total recovery in the housing market, the two guys who know the numbers most, David Blitzer of Standard and Poors and Robert Shiller who helped invent the index, were throwing warning signals out left and right.

Shiller:

I didn’t say we’ve reached a bottom.  I said that this is very suggestive of a major turning point.  But we’ve seen other corrections like this that were reversed.  Notably, a year ago in early 2008, we saw the rate of decline of home prices suddenly get much smaller and it looked good, but then it collapsed again...We really don’t know the future.  That’s why we need markets to help us predict.  And we have a securities market that is still not predicting.  Our UMM, which is traded on the NYSE is still not predicting any major increases going out 5 years.  It’s predicting now that in 5 years, home prices will be 6% higher than they are now.  That is not a huge recovery.

Blitzer:

When you mention is this really the turning point, the way we were back to 1981-1982 where the Fed drove interest rates up, down and back up, and housing starts and housing activity gave exactly the mirror image.  And when the Fed drove rates back up after a very short rebound in the 2nd half of 1980, housing plummeted.  So as you look about the exit strategy, what will Ben Bernanke do over the next 6,12, 18 months…that’s a huge question.  If the exit strategy starts to exit too soon, unfortunately, all bets may be off.

I happen to think these guys are being cautious because they know better than anyone else that the upswing in the price numbers may be driven by temporary or artificial factors.  The first is the first-time home buyer tax credit, which gives buyers $8000 more in purchasing power.  That credit expires at the end of November.  The second is various foreclosure moratoria in the second quarter, coupled with the fact that banks were holding off on foreclosing on many delinquent loans, as they worked their way through the Obama modification program.  Thirdly, the S&P/Case-Shiller data is not seasonally adjusted, and historically  home prices always rise in the spring.  That's why the month to month bumps up and especially this quarterly bump up are not indicative of real trends.  Year-over-year is the most accurate, and prices there are down nearly 15 percent.

Look, we're clearly seeing prices get less worse, stabilizing at the very least as there is great competition on the low end of the market.  But it's all on the low end of the market, and that's not a true recovery.  I think there is still potential for a double dip in home prices, depending on whether or not the tax credit is extended and depending on how bad the foreclosure crisis gets.

Questions?  Comments?