There are two ways to discern today's S&P/Case-Shiller Home Price Index numbers: home prices are at 10-year lows and likely to fall further or home prices are recovering because prices are declining at a slower pace.
Economist Karl Case, co-founder of the widely followed S&P/Case-Shiller index, has a more optimistic view on the market. He says there are cities and towns where the market "is cleaning and prices are holding" and notes that a reduction in new construction will bring the market more in line with the number of people seeking to buy.
"We're bouncing along a rocky bottom," Case says in the accompanying video.
The S&P/Case-Shiller Index aggregates home prices in 20 major U.S. cities. February home prices fell 0.8 percent compared to January levels and home prices are down 3.5 percent from February 2011. The rate at which home prices fell in February was the smallest one-month drop in a year, a sign that housing may be stabilizing. A report from the Commerce Department Tuesday showed new home sales in March dropped 7.1 percent from February to a seasonally adjusted rate of 328,000. February's numbers were revised upward to 353,000 new homes from the previously reported 313,000 units.
Case says home prices may continue to fall in the near term but they are still way off their lows. Home prices fell 25 percent or more from 2005 and 2006 he notes, emphasizing that housing has started its recovery. The reasons that prompted the housing market bubble to burst — too much construction, inflated prices and a reduced number of households — no longer pose a threat to the market. Housing starts for March fell nearly six percent from the prior month to a rate of 654,000, a sharp drop from the two million new homes that were being built between 2003 and 2005.
Even with home prices at 10-year lows and 30-year fixed mortgage rates under four percent, more Americans are renting their homes, signaling a new epoch in the U.S.
"The owner occupancy rate is very very low," Case says. "We've added seven million households in the last seven years and six million of those are rentals. The recent trend underscores the possibility that the "American dream is just gone."