Housing Recovery Should Show Up in Prices

Real estate price data Tuesday should confirm that housing continued to stabilize this summer, even as the rest of the economy remained tepid.

Sold sign
Sold sign

The S&P/Case Shiller home price index is expected to be up one percent for July, when it is released at 9 a.m. ET. The FHFA home price index, released at 10 a.m., is expected to show a 0.7 percent gain in housing prices in July. The data follows on reports last week that showed housing sales were stronger than expected in August, rising 7.8 percent, and home builders sentiment jumped to a six-year high.

“It will probably be pretty strong, just because the mix is starting to work in their favor,” said Mesirow Financial chief economist Diane Swonk of the Case Shiller data. She said there were fewer foreclosures in July’s sales so the prices overall should be higher.

Housing data has pointed to a steady recovery, though at a still low rate of activity.

“We’re seeing more expensive houses in the mix, less distressed sales,” Swonk said. “Headlines have an impact on confidence.”

Swonk said the sentiment around housing is improving, but mortgage availability is still an issue. “There’s movement in the vacation market. A lot more houses are being built now,” she said, but she added that first time home buyers are still sidelined.

Deutsche Bank chief U.S. economist Joseph LaVorgna points out that real estate loans are also trending higher. “Since bottoming in May 2011, residential loans have grown at a 3.7 percent annualized pace,” he noted. “While modest, it is still the best showing since the first half of 2008. if banks begin to ease standards on nontraditional mortgages, residential lending could pick up significantly.”

Homeowners’ equity increased over the last couple of quarters, as housing prices improved. The Fed’s latest data showed that homeowners’ equity increased to $864 billion in the second quarter, from the fourth quarter of 2011. LaVorgna said, in a note, that this improvement has lifted owners’ equity as a share of total real estate from 41.6 percent to 43.1 percent. The peak of owners’ equity share was 61.2 percent in the first quarter, 2001, and it fell to a record low of 37.2 percent in first quarter, 2009, he added.

LaVorgna said homeowners’ equity is a key to household buying power, and he and other economists said the improvements could start to help consumer confidence and spending. The latest reading on consumer confidence is Tuesday at 9 a.m., and it is expected to rise to 65 in September, from 60.6 in August.

Moody’s Economy.com chief economist Mark Zandi said housing is one factor that affects confidence, but not the main one. “It’s jobs, it’s gasoline prices. Stock prices are important,” he said. “ I think on the margin it’s starting to help. I think people are feeling better about their home. They know at least it’s not falling in value, and that’s a big step forward.”

Zandi also said the July period should show good price improvements, since the number of distressed sales was lower. However, he expects to see another wave of distressed sales coming, and that could impact prices in the winter season, when there are normally fewer sales. He said there are three million loans in foreclosure or seriously delinquent, in a pool of 49.5 million loans outstanding.

Gary Thayer, chief macro strategist at Wells Fargo Advisors, said the housing recovery is important, and especially now. “It’s coming at a good time,” he said. “In the past couple of years, there was some strength in manufacturing. The United States seemed to be starting to recover but more recently this year with the recession in Europe, we’re seeing some decline in orders. I think that’s creating some serious headwinds for our economy, and it’s good the housing market is doing its part to support economic growth.”

What Else to Watch

Besides housing data, there is the Richmond Fed survey at 10 a.m., and the $35 billion 2-year note auction at 1 p.m.

European Central Bank President Mario Draghi speaks at 9 a.m. ET. He and German Chancellor Angela Merkel are addressing an annual industry conference in Berlin. Merkel speaks at 4 a.m.

President Barack Obama speaks before the U.N. General Assembly on its opening day Tuesday.

Philadelphia Fed President Charles Plosser speaks at noon on the economic outlook.

Earnings are expected from Carnival, FactSet, Neogen Vail Resorts, Jabil Circuit and Copart.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com