Prices Up, but 2nd Half of 2012 Could See Declines: Radar Logic

""Radar Logic's"":http://www.radarlogic.com/ composite to measure home prices may show monthly and yearly gains, but contrary to other reports, the analytics company argues that the increases don't mean prices have hit bottom.

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""Those people looking at current results and calling a bottom are being dangerously short-sighted,"" said Michael Feder, Radar Logic's CEO. ""Not only are the immediate signs inconclusive, but the broad dynamics are still quite scary. We think housing is still a short.""

According to Radar Logic's RPX Composite, which is based on 25 metropolitan statistical areas, prices in May rose 2.6 percent month-over-month and 0.7 percent year-over-year.

Despite these findings, Radar Logic contends the increases are due to temporary forces, such as the warm winter weather, and appreciation may not be consistent for the entire year based on previous trends.

Radar Logic data from 2009 to 2011 revealed a pattern of price appreciation from the beginning of the year through the end of June, followed by price declines for the rest of the year.

For example, from January 1 to June 30, the RPX Composite increased 3 percent in 2009, 3.4 percent in 2010, and 2.2 percent in 2011.

However, from July 1 to December 31, prices moved in the opposite direction and fell by 2.7 percent in 2009, 6 percent in 2010, and then by an even greater 7.7 percent in 2011.

""Even if the mild winter hypothesis turns out to be false, home prices are not likely to appreciate on a sustained and meaningful basis. Rather, short-term appreciation will paradoxically short-circuit long-term appreciation and perhaps trigger further declines,"" Radar Logic stated.

The analytics company explained the higher prices seen will lead to more supply as financial institutions start unleashing their foreclosure inventory and homeowners that were unable to sell due to negative equity will at last list their homes. As supply increases, prices will move downward again.

Also, with much of the current demand coming from institutional investors, Radar Logic also argued that the rise in prices may mean fewer purchases from investors, who may not be able to yield the returns they are seeking as prices climb.

While the speculation is based on data from previous years, it's still hard to be certain about where prices are headed for 2012.

""From one year to the next, price trends tend to vary much more in the second half of the year than in the first,"" said Quinn Eddins, director of research at Radar Logic. ""We will have to wait to see data for October or later to know whether 2012 will turn out to be a good year or a bad year for home prices.""