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Home Prices Rise: A Sign That Housing Has Bottomed?

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Home prices came in better-than-expected in April, possibly signaling that the housing market has finally started its recovery.

According to the latest S&P/Case-Shiller home price index, home prices rose roughly 0.7 percent from March to April compared to the expected 0.3 percent gain. In March, home prices also increased 0.7 percent, the biggest two-month gain since 2009. Year-over-year prices declined just 1.9 percent versus the estimated 2.5 percent drop, marking the slowest pace of declines since November 2010.

These figures follow on the heals of other recent positive housing data, including housing starts, existing home sales and new home sales.

Daniel Gross, Yahoo! Finance economics editor (and resident optimist), believes this data provides a glimmer of hope for the U.S. housing market and the country's overall economic health. In a recent column, he writes:

For the past few months, we've been noticing the ways in which housing — for so long a drag on economic growth — has become a relative bright spot. Foreclosures are stilling clogging up the system and house prices are far below their peaks. But housing activity has been on the rise in the past year….

One of the great things about home sales is that they spur a lot of collateral economic activity. Every time a house is sold, that's business for the title insurer, the mortgage broker, the real estate broker, the appraiser, the mover, an insurance agent and so on.

But Barry Ritholtz, president of Fusion IQ and author of The Big Picture blog, disagrees and argues that the positive housing data of late is due to the cyclical nature of the housing industry. He says another wave of foreclosures is coming soon, which will in turn negatively impact the market.

"The bottom line is for the past year the foreclosure machinery has been voluntarily put on hold [and] that removes all the distressed assets and the distressed sales from the pools and you end up with better prices and a false optimism," says Ritholtz in the accompanying interview.

In February, the federal government and state attorneys general agreed to a $26 billion settlement with five of the biggest banks for their abusive loan practices that led to the country's foreclosure crisis. During that time, as Ritholtz mentions, banks voluntarily held off on pushing through the large number of foreclosed properties sitting on their books. (See: $26B Mortgage Settlement: Good for Banks, Not so Good for Homeowners)

"Now that the robo-signing deal is in the rear-view mirror, the creaky machinery of foreclosures is starting to come up again [and] that's going to have an impact over the next twelve months," says Ritholtz. To further his case, he cites a recent analysis by Amherst Securities' Laurie Goodman in which she found that nearly 3 million families are 12 months or more behind in making a payment on their mortgage.

In the accompanying video, Dan and Barry face off over the state of the housing market. Tell us what you think: Is housing on the rebound or not?

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