Home Prices Threaten to Pierce into Double Dip Territory

That housing double-dip we warned of long ago, that is now so clearly visible, is near being officially declared. Case Shiller reported that its indices covering the nation's most major Metropolitan Statistical Areas (MSAs) were at the dark threshold that marks double-dip territory (base on price). That said, the price chart offers some hope, tempered though by active disruptive threats to underlying demand.

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Home Prices Threaten to Pierce into Double Dip Territory

Case Shiller, in conjunction with Standard & Poor's, reported that its price composite indices covering the nation's largest cities had each fallen 1.1% in February. The 10-City and 20-City Composites were 2.6% and 3.3% below prior year levels, respectively. Most intriguing was the fact that the 10-City Composite was just 1.5% higher than the trough set in April of 2009, and the 20-City Index was about there already. From peak to trough, with the peak set in June/July 2006, prices are down about 32.5%. Another month of decline and both indices could very likely mark a new trough, officially registering double-dip in price terms.

Prices are now about where they were in the summer of 2003, and the damage is widespread. Nineteen of the 20 MSAs Shiller measures saw price decrease during February. And if you are thinking it was a weather driven change, you would be wrong, since 14 MSAs recorded negative returns for six consecutive months or more. The trouble continues from light economic activity, high unemployment and the heaven burden of the flood of distressed properties weighing on real inventory.

That said, the chart seems to show sign of turn in price, and certainly spring demand is at play. Just a day before the pricing data release, New Home Sales were reported for March (more recent), and it showed an increase in the annual pace of sales to 300K. That was above economists' views, as was the Existing Home Sales pace reported last week.

Both data points still offered less than enthusing absolute levels of sales. Also, gasoline price increase, along with food and other goods, is undermining consumer demand even while prices for homes are falling and spring is dawning. The delicate balance could be thrown off by so many factors, not least of which is fuel pricing. So while it would appear that home prices are nearing a more natural bottom, these other disruptive factors remain capable of producing paradigm shift yet again. Under such circumstances, it's simply more difficult than usual to accurately forecast real estate recovery.

Yet, keep in mind that homebuilders shares should precede the broader recovery, and benefit from any turn in real estate sales. This is a point I've made regularly. However, a big problem arises from increasing market awareness of a sluggish recovery weighed by new constraints including rising food, fuel, commodity and other prices. Uncertainty is prominently positioned in the forecast for the years ahead. That could halt a homebuilder spurt in its tracks, or at least delay it until a more driving recovery emerges.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), UltraShort Real Estate ProShares (NYSE: SRS), Ultra Real Estate ProShares (NYSE: URE), ING Clarion Global Real Estate Income Fund (NYSE: IGR), Xinyuan Real Estate Co. (NYSE: XIN), Rydex Real Estate Fund H (Nasdaq: RYHRX), T. Rowe Price Real Estate Fund (Nasdaq: TRREX), Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), D.R. Horton (NYSE: DHI), Beazer Homes (NYSE: BZH), Lennar (NYSE: LEN), K.B. Homes (NYSE: KBH), Pulte Homes (NYSE: PHM), NVR Inc. (NYSE: NVR), Gafisa SA (NYSE: GFA), MDC Holdings (NYSE: MDC), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Brookfield Homes (NYSE: BHS), Standard Pacific (NYSE: SPF), M/I Homes (NYSE: MHO), Orleans Homebuilders (AMEX: OHB), Vanguard REIT Index ETF (NYSE: VNQ), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), Hooker Furniture (Nasdaq: HOFT), Ethan Allen (NYSE: ETH), Pier 1 Imports (NYSE: PIR), Williams Sonoma (NYSE: WSM), Home Depot (NYSE: HD), Lowes (NYSE: LOW), AMEX: VAZ, AMEX: NKR, AMEX: MZA, AMEX: NXE, AMEX: NFZ, Nasdaq: XNFZX, Nasdaq: FSAZX, Avatar Holdings (Nasdaq: AVTR), Apartment Investment & Management (NYSE: AIV), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), Senior Housing Properties (NYSE: SNH), BRE Properties (NYSE: BRE), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Associated Estates (NYSE: AEC), PennyMac Mortgage (NYSE: PMT), Two Harbors (AMEX: TWO).

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