Money

Home Prices and New Home Construction Update

By Ilyce Glink

Updated on: October 6, 2011 / 9:54 AM EDT / MoneyWatch

Things are looking up in Detroit: the Tigers just clinched the American League Title, the Lions are starting their NFL season with a 3-0 record and home prices are climbing.

The city that has homes for less than $3,000 saw a 3.8 percent jump in prices from June to July, 2011. That means an increase of just over 1 percent from last year.

While that might not be a huge number, it's something. And it's better than what happened in some other metropolitan areas over the past year.

According to the S&P/Case-Shiller Index released last week, home prices rose nationwide for the fourth consecutive month. This news comes just one day after the U.S. Department of Housing and Urban Development (HUD) released the new home sales numbers for August. As it turns out, there's positive news there, too â€" new home sales rose 6 percent from August 2010 to 2011.

But this is where the numbers get a little tricky. While home prices have risen for four months straight, home prices have dropped on an annual basis. Even the increase in new home sales has its downside: At the current sales rate, without adding a single additional new home listing to the market, the inventory of new homes would still take more than 6 months to burn through.

Add that inventory to a real estate market already flooded with foreclosures, and you reach the crux of the problem: There are still more people selling than buying. As of August 2011, the median market time for a new home was over 8 months - bad news for anyone looking to sell their home right now. The index cites a two year trend of declining mortgage default rates which hopefully means less REOs on the market, but even without them there's a flood of underpriced homes just waiting for a buyer.

David M. Blitzer, Chairman of the Index Committee at S&P Indices, has some insight into where we're headed. "While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery-- if you look at the state of the overall economy and the recent large decline in consumer confidence, these statistics indicate that the housing market is still bottoming and has not turned around."

It's hard to judge what's happening by the spring and summer housing market numbers. According to Blitzer, it's the seasonal period of stronger demand for houses and this may account for the four consecutive months of rising prices. What happens between now and January will be telling, but hopefully the falling mortgage rates drive some buyers into the market.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.comand The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com.