Home Prices Rise in Nearly All Markets

According to the seasonally adjusted Case-Shiller index of home prices for August, released today, home prices rose in all but four of the twenty markets that make up the index. The four markets in which prices did not rise were Charlotte, Las Vegas, Cleveland, and Seattle. Even Detroit, where housing prices have been plummeting, saw modest increases. Prices rose in every region of the country. That’s unquestionably good news.

However, Bloomberg points out the worm in the apple:

Rising home sales, due in part to government programs including the first-time buyer credit and efforts to lower borrowing costs, have helped stem the slump in property values that precipitated the worst recession since the 1930s. Sustained gains in household spending, the biggest part of the economy, may be harder to come by as joblessness mounts.

These gains are very fragile and it’s difficult to assess the influence that the incentives for first-time buyers, a very bad policy, are having on the rise in the housing markets.

The situation is analogous to the boost in auto sales as a consequence of the Cash for Clunkers program. Yes, the incentives have boosted sales of autos and houses in the near term. However, without a foundation more robust than the gimmicks that the incentive programs represent it’s no basis for a rebound in these industries. An economy needs a sounder basis than a series of short-term gimmicks.