Back Home Again (Part 2)

It turns out home prices aren’t so far from coming back after all.

Yesterday I wrote how housing activity usually picks up before housing prices do. Well yesterday we got
housing price data too, and it was pretty encouraging. The Case-Shiller index of home prices reported that
prices actually rose, on average, in May versus April. This is the first actual rise in the index in almost
three years.

It’s hard to see how the index could be higher if foreclosure sales are pulling down prices. It’s hard to
see how the prices can go up if banks are just dumping their unsold inventory on the market. It’s hard to
see why people would bother paying up for a new home if dirt-cheap foreclosed properties are widely
available.

No, it must be that the combination of lower rates, government incentives, and consumer appetites are
creating enough demand to stabilize the market. And with the housing market stable, banks can value their
“toxic” assets and assess their true need for capital. The financial crisis may be nearly over.
And that, my friends, is also encouraging.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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