Curb Your Housing Bottom Enthusiasm

By Kevin Grewal, editorial director at SmartStops.net

To the surprise of many, housing prices showed a bit of prosperity, indicating an improvement in the rate of decline in April and further supporting the optimistic point of view that the U.S. housing slump is nearing a bottom. But is this just wishful thinking or is a trend emerging?

The famous Case-Schiller index, which tracks home prices in 20 major U.S. metropolitan areas, declined at a slower pace than experts forecasted. Home prices fell by 0.6% from the previous month as opposed to the 1.8% expected.

In addition, encouraging news regarding pending home sales was released by the National Association of Realtors. Pending home sales rose for the fourth straight month to a seasonally adjusted index reading of 90.7, which is 6.7% higher than May 2008. A combination of this news, in addition to announcements stating that sales of existing homes posted gains in April and May and the unexpected jump in housing starts in May from a record low, is giving some the ammunition to the claim that the worst of the housing slump could be over.

However, one must address the following issues before supporting the belief that the housing market is in the clear. First of all, consumer confidence must rebound. In June, consumer confidence took an unexpected dip, suggesting that the average American doesn't think the recession is over and the economy is still in shambles.

Second, borrowing costs must remain relatively low. They have been rising, making it less appealing to obtain mortgage loans or refinance current mortgage loans. Also, there is roughly a 10-month supply of existing homes on the market, which will most likely be a factor that keeps prices down.