Housing: Is the nightmare over?

The housing sector is improving, but buyers should proceed with caution.

After three years of price declines, relief may finally be on the horizon for America’s homeowners, said Mary Angela Rowe in Reuters. Last week the 20-city Standard & Poor’s/Case-Shiller housing index reported an average 0.5 percent increase for May—its first gain since 2006. That’s “a pretty significant indicator that we might be at or near a bottom,” says economist Karl Case, who helped develop the index. The news came on the heels of the U.S. Commerce Department’s reporting an 11 percent jump in new-home sales in June. Meanwhile, the National Association of Realtors said that June marked the third consecutive month of rising existing-home sales, further “feeding optimism about the beleaguered housing sector.”

That may be a bit too hasty, said Peter Coy in BusinessWeek. Home prices almost always increase slightly between April and May. Look more closely at the Case-Shiller data and you’ll see an increase only when looking at raw data; seasonally adjusted prices actually show a continued decline, of 0.16 percent. Granted, “that’s a huge improvement, considering that from last September through March the index was falling at an annual rate of more than 20 percent.” But there is still no “definitive evidence” that the worst is over. Continued foreclosures will keep adding to housing inventory through 2010, and “as long as the unemployment rate is around double digits, there will be downward pressure on the housing market.”

“What does that mean for buyers?” said Nick Timiraos in WSJ.com. If you absolutely must purchase a new home right now, and see prices stabilizing in your area, go ahead and do it. “There are many more ‘bargains’ now than at any time in the past few years,” and you can worry a little less about steep drops after this point. Just don’t expect to be reaping profits any time during the next five years. Yale professor Robert Shiller, the other man behind the index, “expects home prices to remain at current levels, possibly declining a little further before bouncing back.”

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