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 4.25%
15 yr fixed 3.23%
5/1 ARM 3.37%
30 yr refi 4.19%
15 yr refi 3.18%

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
Bank of America Corp... 16.18 0.66 4.28%
eBay Inc 55.91 2.51 4.70%
Hewlett-Packard Co 37.12 2.00 5.68%
Intel Corp 35.15 0.65 1.88%
Apple Inc 100.55 -0.02 -0.02%
Data as of 3:49pm ET
Index Last Change % Change
Dow 17,039.56 60.43 0.36%
Nasdaq 4,532.10 5.62 0.12%
S&P 500 1,992.37 5.86 0.29%
Treasuries 2.41 -0.02 -0.78%
Data as of 4:05pm ET
More Galleries
10 most expensive cars sold at Pebble Beach These multi-million-dollar cars sold for top dollar at this year's Pebble Beach collector car auctions. More
The world's most popular beer is ... Few people outside China have ever tasted the top-selling brew in the world. More
Transformations on the street On his days off, stylist Mark Bustos gives free haircuts to the homeless. Here are some of the transformations. More
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

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.