What the Case Shiller Indexes Indicate

Following the release of the first quarter 2012 Case-Shiller Home Price Indexes, economists from ""IHS Global Insight"":http://www.ihs.com/products/global-insight/index.aspx and ""Capital Economics"":http://www.capitaleconomics.com/ offered their take on whether the data indicates the market is stabilizing or still searching for a bottom.

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Patrick Newport and Michelle Valverde, U.S. Economists for IHS Global Insight, said it depends on where you are since prices are driven by local forces such as foreclosure rates and job growth.

""Still, in most cities, home prices appear to be stabilizing. The Case-Shiller aggregate indices are not showing this yet because of how the cities are weighted,"" the economists stated in their analysis.

On a yearly basis, the S&P reported that in March, the 10- and 20- city indexes dropped down 2.8 percent and 2.6 percent, respectively, while the national index was down 1.9 percent annually. The Case-Shiller index uses non seasonally adjusted numbers. The index also showed seven out of 20 of the cities posted yearly gains.

Using the example of New York and Los Angeles, Newport and Valverde explained that in those metros, prices dropped 2.8 percent and 4.8 percent yearly, and account for 48 percent of changes in the 10-city composite and 34 percent of changes in the 20-city index. The effect is these cities drag prices down. However, if a metro with rising prices such as Houston was included instead of any one of the California cities, IHS noted that the Case-Shiller city composites would be more similar to the FHFA index, which reported slight increases in prices.

As for the future, IHS said the bottom is in sight, but foreclosures, excess supply, and weak demand will still drive the Case-Shiller indices down a bit further.

Capital Economics focused on seasonally-adjusted numbers when responding to the data and said the national index reported its strongest quarterly gain in two-and-a-half years. On a seasonally-adjusted basis, prices rose by 1.1 percent quarter-over-quarter while on non-seasonally adjusted terms, prices dropped by 2 percent quarterly.

""And with the economic recovery now on firmer ground, we see no reason to alter our view that US house prices have now found a floor,"" wrote Ed Stansfield, chief property economist with Capital Economics.

With the euro-zone crises posing risk, Capital Economics said there are some signs that the recovery has lost some momentum, but still, other factors point to reasons for ""cautious optimism.""

Looking ahead, the research firm expects future gains to be modest.

""And given the likelihood that the divergence between city-level performances will remain high, further house price gains may well be interspersed by the occasional reverse. But unlike the experience of 2009, when temporary tax credits prompted a modest but short-lived rise, we do think that this house recovery will last the course,"" Capital Economics stated.