Signs of Housing Recovery Will Fade When Govt Stimulus Ends, Greenhaus Says

Jan 26, 2010 12:50pm EST
by Peter Gorenstein
Video at the link

Home prices in November fell 5.3% from a year earlier, the smallest year-over-year decline in two years. Overall, the S&P/Case-Shiller home-price index rose 0.2% from the prior month, the sixth-consecutive monthly rise. Meanwhile, the pace of annual decline in home prices has improved for 10-straight months.

So is a housing recovery upon us?

"While the worst is behind us that does not by any means mean the best is imminent," says Dan Greenhaus, chief economic strategist with Miller Tabak. That point is borne out by the facts: The 20-city index is still down 29% from its peak in July 2006.

Also, Greenhaus says any signs of a recovery are built on a foundation of government stimulus in the form of the first-time home buyer's credit and the Federal Reserve's purchase of mortgage-backed securities (MBS) -- which are both set to expire this spring.

When those policies fade Greenhaus is confident prices could decline "another 10%" and mortgage rates will rise, the latter because he doesn't see enough private demand for MBS to replace the Fed's buying.

So what markets are faring well and which are still struggling?

Here's the skinny according to David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

* -- Charlotte, Las Vegas, Seattle and Tampa -- posted new low index levels as measured by the past four years
* -- Los Angeles, Phoenix, San Diego and San Francisco posted price increases for at least six consecutive months

http://tinyurl.com/y96qj7t