U.S. Home Prices Easing to a Stop? Don't Be So Sure

(MoneyWatch)  U.S. home prices dropped at a slower pace in February than in the few months before, but don't pop the cork just yet: that improvement is part of an annual cycle that recurs pretty regularly. However, it is true that the S&P/Case-Shiller Home Price Index fell less in February, and that the pattern of decreases this year are a little less severe than last year.

The average of nationwide home prices fell 2.2 percent in February, compared to an average drop of 2.5 percent per month for January, and December/November 2008. That's a decrease of 18.6 percent from a year earlier that effectively eases home prices back to the levels of September 2003 for the U.S. as a whole.

To illustrate, I've made two graphs, in part because S&P/Case-Shiller's own graphs are a little hard to grasp, and rather scary if you are a homeowner. The first is just the level of the index from its start in 1987. (Click the graph for a larger version.) There are two points to notice here:

1. The pace of decrease is still pretty sharp, that is, the downward slope on the right side of the graph is still pretty steep.
2. In spite of the conventional wisdom that "house prices always go up," there was a long period in the recent past, from 1990 to 1998, when prices didn't go up (or down) much at all, at least for the US as a whole.

Source: Standard & Poor's
The second graph is the month-to-month percentage changes in prices in the Case-Shiller data, which illustrates the seasonal cycle of housing sales. Yes, the housing picture improved a little in February, in that the decreases were a little slower than a year ago. But the smaller decrease from January happens all the time. (It's a little hard to see unless you click into the larger version, but there is a high and a low for every year back to 1987, and January is often the weakest month in terms of month-to-month changes in prices.)


Source: Standard & Poor's
Rich Thomas, CEO of the MetroTex Association of Realtors, which covers the Dallas-Fort Worth region, explains the seasonality. "It used to be that most of our sales were to families with a husband, wife, 2.3 children and a dog, and the cycle revolved around the start of school in September. But now we sell to them, and singles, and everybody. Activity starts to weaken around Election Day, and the holidays, and then people are paying that off, and in some places it's hard to even show a house in January when you can't get your car down the street."

So the February data are nothing to get excited about. Compared to last year things are heading in the right direction, but we're still deep in negative territory.