US Housing Data Isn’t All Rosie

According to the most recent S&P/Case Schiller housing price index report, home values in the world’s largest economy rose by 0.5% on an annualized basis.  A potential rebound in the housing sector, right?  Probably not. 

When taken at face value, the report could signal a potential bottom in the very sector that helped to spark the country’s financial crisis.  But, the numbers are misleading and may be nothing more than a one off happening.

Guest post  by Richard Lee

Seasonal factors played a large role in the much improved figures this time around.  Released in August, the survey encompasses demand in June, a month typically marking the end of the Spring season.  This is important to note.  Homebuyers, who likely began their search in early March, are looking to close out their deals before the summer starts – supporting a surge of activity.

The notion has led to either a stabilization or an uptick in the S&P/Case Schiller housing report during the same time in the last 4 years.  Not to mention that 2010’s gain was widely supported by the expiration of the government’s tax credit program.  A more supported claim of a rebound in housing prices would have had to come from an off month increase – let’s say a 1-2% gain in the month of November or December.

Additionally, the survey’s monthly calculations can lead to an over or understatement of the true condition of the real estate market.  Specifically, the findings are run on a 3-month average, with no seasonal adjustments or weights added.  This means that the method is likely to be heavily influenced by prior’s month’s data.  In this case, June’s figures may have been pushed higher by positive gains in both April and May.  This creates a rosier than anticipated picture, rather than a true evaluation of the current environment.

So, even though June’s survey results were higher, compared to already depressed housing results witnessed last year, they still aren’t enough to support the notion of a housing sector rebound.  This realization will likely keep the Federal Reserve dovish in the long term – adding to already disappointing labor and price inflation information.  In turn, it also adds fodder to already growing speculation of another round of quantitative easing.  The growing specter has already boosted major currencies in the near term, with EURUSD and GBPUSD the main beneficiaries.