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How to make U.S. housing bust look ever worse

Deborah Baic/Deborah Baic/The Globe and Mail

Calculated Risk has a way of making the stunning decline in U.S. home prices look even worse. According to the S&P/Case Shiller index for January, released on Tuesday morning, the average home price is back to where it was in 2003.

But Calculated Risk decided to add inflation into the mix and found that in real terms, home prices are back to where they were in 1998, when using the National index. Other indexes weren't quite as bad: the Case-Shiller composite index of 20 cities is back to 2000 after inflation is factored in; the CoreLogic house price index is back to 1999.

"In real terms, all appreciation in the '00s – and more – is gone," the blogger said.

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Of course, what has already happened and what is about to happen are two totally different things. As I noted in my Market View video today, U.S. homebuilding stocks seem to be reflecting a far more upbeat future. The S&P 500 homebuilding index – which consists of DR Horton Inc., Lennar Corp. and PulteGroup Inc. – has risen nearly 36 per cent his year, and is up 113 per cent from its recent low in September.

Part of Tuesday's gain might be coming from strong quarterly results from Lennar, whose earnings topped analysts' estimates. The company also reported a 33 per cent gain in new home orders.

But some economists also took a sunnier view on the S&P/Case Shiller home price index. Prices fell 3.8 per cent over last year and fell 0.8 per cent from December on a seasonally unadjusted basis. But on a seasonally adjusted basis, home prices were flat in January over December. Warm weather? Maybe, but some observers were more hopeful than that.

Capital Economics: "The stabilisation in Case-Shiller house prices in January adds to other evidence that the housing market is on the mend. We expect that 2012 will go down in history as the year that the most severe house price crash on record ended."

High Frequency Economics: "A sustained recovery in home prices is still a long way off, but stabilization is an essential first step, not least because no-one wants to borrow money to buy a depreciating asset. When prices stabilize, having been falling, the implied real mortgage rate falls, prompting increased sales. This could, therefore, be the start of a virtuous circle."

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