Desperately Searching for a Bottom to Home Prices

The Wall Street Journal breathlessly proclaims that home prices have bottomed out:

U.S. home prices rose in the second quarter for the first time in three years while logging a second-straight monthly increase in June, according to the S&P Case-Shiller home-price indexes.

For the second quarter, the S&P Case-Shiller U.S. National Home Price Index posted a 14.9% drop from a year earlier, an improvement over the record 19.1% drop in the first quarter. It was up 2.9% sequentially.

David M. Blitzer, chairman of S&P’s index committee, said he’s seeing some positive signs for the second month in a row and sees “hints of an upward turn from a bottom.”

The monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit the hardest. Nationally, home prices are at levels similar to early 2003.

At the end of the second quarter, average national home prices are down 30% from their peak in the second quarter of 2006.

However, when you look at the actual index numbers, the news is a little more mixed and, indeed, supports the point I’ve been making here for some time, that the home price crash is substantially a local phenomenon. Seasonally adjusted, home prices continued their fall on a month over month basis in the following markets: Tampa (negligible), Detroit, Charlotte, Las Vegas (2% drop), Seattle.

I’ll repeat what I’ve been saying all along: if you treat home prices as a single thing, nationwide, you can’t arrive at a policy for dealing with the problems that are fomented by falling home prices except, possibly, by dumb luck. Detroit’s problems are not the same as Las Vegas’s problems and many areas of the country really don’t have a problem at all. One size does not fit all.

The housing price crisis and the mortgage crisis are not national problems. They are local problems with national implications. Taking those national implications into account while I feel that the involvement of the federal government is warranted treating the matter with a one size fits all solution might be politically popular but it won’t address the urgent problems in the markets that are really in trouble, each of which may need a solution tailored to its distinctive problems. State governments need to be involved. They can’t be supine.

There is no such thing as a national housing market. There are thousands of local housing markets. While pretending that there’s a national housing market may make it administratively easier to arrive at a solution, it’s no way to arrive at a working solution.