Gluskin Sheff’s chief economist and David Rosenberg appeared to be delighted by the rise in the Case-Schiller index of US house prices on Tuesday:
CASE-SHILLER HOME PRICE INDEX RISES – NOW THIS IS A GREEN SHOOT!
One by one, the shocks that the U.S. economy endured are being worked through (though there is one lingering impediment).
The sharpest part of the mean reversion in credit is probably over, but the credit contraction still has a long way to go before household debt ratios head back to anything remotely close to pre-bubble historical norms. This in turn suggests that the trend towards frugality will persist.
Now we have the second shock – housing – subsiding. You couldn’t have written a better script, a day after unsold new housing inventory plunges from 10.2 months’ supply to a three-year low of 8.8 MS, we see the Case-Shiller home price index rise (0.45% sequentially) for the first time since the bubble burst in May 2006 (note that in seasonally adjusted terms, prices still dipped 0.2% MoM) and 14 of the 20 cities eked out an increase. Stabilizing residential real estate prices is absolutely an essential ingredient in transitioning out of the recession, though inventories are still far too high to warrant a sustained upturn. Bottoming is one thing, booming is quite another.