The Case-Shiller Home Price Index was released yesterday, and like Punxsutawney Phil on a sunny day in March confronting his own shadow, it looks as though U.S. house prices are in for another bout of chilly weather. As we forecast months ago, both in this daily free letter and in greater detail in our premium advisory service The Casey Report, the meager uptick in house prices seen over the summer was bought and paid for, the direct result of government intervention in this market via the first-time home buyer tax credit that has since expired.
As shown in the chart, both rounds of the buyers credit – round one began in 2009 and was reincarnated in 2010 to include a larger pool of eligible buyers – show an identical price pattern that reflects buyer behavior. The incentive to purchase simply pulls future demand forward, causing an initial spike in buying volume and the predictable follow-on firming in house prices.
But the desired effects soon fade as the number of interested and eligible buyers dwindles and is eventually exhausted. That is where the housing market finds itself today.
This year’s program was at first scheduled to expire on June 30. However, many buyers-in-waiting faced difficulty and lengthy delays in securing financing. In response, legislation was enacted in July 2010 that extended the deadline for buyers to close on a sale from June 30 to Sept. 30, 2010. And as the Case-Shiller Index is published with a two-month lag, the latest release being calculated through September, from here on out the index will not have the benefit of a government program juicing the numbers. The program has ended, and likely so has the modest rise in house prices.
Regular readers of this service are familiar with the index and that it measures house prices for a select grouping of metropolitan areas, something we covered in a Dispatch earlier this year. Less well known is that Case-Shiller also publishes a national figure based on the nine regions into which the U.S. Census Bureau subdivides the U.S. Let’s take a look at that index:
So it appears that the same house price action seen in the country’s major metro areas is also happening on a national scale. Barring any further interventions in the housing market, and absent a rebound in the economy and employment, we expect that U.S. house prices will continue to show price weakness throughout 2011.
