Skip to Content
Stock Strategist Industry Reports

Home Prices: Sustainable Bottom or Dead Cat Bounce?

Recent price action suggests that the shadow inventory problem may not work out like most think.

Mentioned: , , , , , , , , ,

The United States housing market recently wrapped up its best selling season in three years. Prices of existing homes, as measured by the Case-Shiller 20-city index, now stand 3.6% above the lows set in April; unit volumes of existing home sales are 15% above their November 2008 low; production of housing was 25% higher on a seasonally adjusted basis in August than at its April low; and some homebuilder order books have even started to grow for the first time in about a dozen quarters. In all, a pretty good couple of months that surprised most market participants in its direction as well as its magnitude.

As the market heads into the fall, there is considerable difference of opinion as to the sustainability of the current path of home prices. Is this recent strength the beginning of a sustainable bottom, or just a dead-cat bounce? Well, I can say with some certainty that prices are weakening as I write, but not by any more (and maybe even less) than in a normal year at this time. Seasonality is strong in housing, buoying prices in the spring and weighing on them in the later part of the year. In truth, it won't be until next spring that we have a good idea about the answer to the above question, but activity in 2009 suggests something is afoot. Buyers came out of the woodwork in places like California, and to a lesser extent in Phoenix and some areas of Florida, suggesting that prices in the harder-hit areas are attracting bargain hunters in very large numbers. This hasn't been the case for a few years, indicating the ballgame may have changed (with some generous help from Uncle Sam).

To view this article, become a Morningstar Basic member.

Register for Free

Eric Landry does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.