Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Breaking Views

Housing: 'Better' doesn't mean 'good'

Just because prices briefly slowed their slide doesn't mean it's time to ballyhoo for a bottom.

By Robert Cyran, breakingviews.com

Mortgage Rates
30 yr fixed 3.83%
15 yr fixed 2.95%
5/1 ARM 3.13%
30 yr refi 3.95%
15 yr refi 3.05%

Find personalized rates:
 

Rates provided by Bankrate.com.

(breakingviews.com) -- Is the U.S. housing market approaching bottom? The rate of decline in U.S. house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities.

That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.

Better isn't synonymous with good. The decline is less dramatic than January's 2.6% fall, but it's still an awful figure. Prices have fallen 18.8% over the past year, according to the index.

But let's be optimistic an say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that's to say a 2.1% decline instead of a 2.6%).

Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower - worse than the baseline case under the stress tests.

And while the idea that price declines are moderating makes sense - prices cannot fall to zero - the evidence they are is feeble.

One month doesn't make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year.

Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn't yet petered out.

Home prices will eventually reach bottom. But it's not yet in view. To top of page

Find mortgage rates in your area


Company Price Change % Change
Freeport-McMoRan Inc... 10.50 0.31 3.04%
Bank of America Corp... 16.36 -0.08 -0.49%
Apple Inc 113.29 0.37 0.33%
Intel Corp 28.42 0.70 2.53%
Alcoa Inc 9.41 0.55 6.21%
Data as of Aug 28
Index Last Change % Change
Dow 16,643.01 -11.76 -0.07%
Nasdaq 4,828.33 15.62 0.32%
S&P 500 1,988.87 1.21 0.06%
Treasuries 2.19 0.02 0.83%
Data as of 12:21am ET
More Galleries
The stock market's wild week in 6 pictures It was the wildest week in stocks in recent memory. Here's photos and CNNMoney's tweets of reactions to the panicked selling on Monday and Tuesday, which gave way to a mad buying scramble on Wednesday and Thursday. And then...a selloff on Friday again. More
How New Orleans is learning to live with water After Hurricane Katrina, the city of New Orleans had to reinvent the way it manages water and protects itself from future storms. More
Your degree will earn you the most from these colleges Art majors can make big bucks, too. Find out which school has the highest paid grads in your major. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play