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Stock Strategist Industry Reports

Home Prices Going Higher This Spring?

Home prices look up this spring, but the longer-term indicators are more murky.

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In an August 2010 Stock Strategist, "Housing: A Tale of Two Time Periods," we surmised that home prices would be pressured for at least the remainder of 2010 but that the long-term outlook for at least stable prices was actually pretty good. Unfortunately, the first part of the forecast turned out to be spot on--home prices sank 3.5% between July and December according to the popular Case-Shiller 20-city index. The expiry of the federal homebuyer tax credit, combined with high levels of existing inventory, a weak economic recovery, and terrible consumer sentiment, made for difficult back half of 2010 in the housing market, to say the least.

Today, we're becoming more constructive on near-term prices. In fact, we wouldn't be surprised to see a decent upward move in the popular Case-Shiller indexes in the very near future. Figure 1 shows that listing prices in the index have already started a rebound after a horrendous December. While these median listing prices often suffer distortions from changing mix, they've proven to be a relatively reliable predictor of short-term movements in the popular Case-Shiller indexes.

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

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