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Firms Sound Off on Rising Case-Shiller Index

Following the ""news from Case-Shiller"":http://dsnews.comarticles/case-shiller-home-prices-up-after-7-consecutive-monthly-drops-2012-06-26 that home prices rose in April for the first time in seven months, ""IHS Global Insight"":http://www.ihs.com/products/global-insight/index.aspx and ""Capital Economics"":http://www.capitaleconomics.com/ both released commentaries speculating on the unexpected news and the housing market's future.

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IHS attributed the uptick in prices to three factors: Current low mortgage rates, strong investor demand, and a drop in homeowners listing their homes for sale. The third force, IHS said, was caused by an erosion in equity from the collapse in home prices, reducing the pool of homeowners able to sell.

Calling the price stabilization ""welcome news,"" IHS said that the rise in prices is beneficial in two ways. First, higher prices will bring down the number of underwater homeowners, in turn reducing the number of future foreclosures. Second, a positive gap between home prices and inflation will cause wealth to rise and give a boost to consumer spending.

IHS did, however, include a warning to restrain optimism.

""Have we hit bottom? It is tempting, but premature to conclude so. The number of foreclosures working their way through the pipeline suggests that prices could take a turn for the worse, especially if the US economy weakens. The most likely scenario, in our view, is that home prices will zigzag over the coming months, rising during the selling season, slipping in the fall. We are expecting home prices to cautiously start moving up in 2013, however,"" said IHS.

Capital Economics had a similar outlook, believing that the ""recent strong upwards momentum in house prices may not be sustained for much longer."" The group pointed to tight supply conditions as a cause for the price gain and said that these conditions are unlikely to last with foreclosure and short-sale processes happening quicker than before. The continuing euro zone crisis also presents a risk, as a second recession in the United States would likely cause house prices to fall once more.

Nevertheless, Capital Economics called the price gains a sign that the country is in the early stages of a sustainable house price recovery.

""But we are encouraged that confidence in the house price outlook is improving, with consumers expecting prices to rise further over the next year. And, driven by investors attracted by record-low valuations, rock-bottom interest rates and low yields on other assets, there is an underlying improvement in housing demand underway. In time, falling delinquency rates should encourage lenders to loosen credit conditions, allowing mortgage-dependent buyers to think about a house purchase as well,"" said Capital Economics in its commentary.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.
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