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In contrast to last week, the housing data points over the last two days suggest that the housing market is still improving on the margin!

The most recent Case-Shiller data for the month of September suggests that home prices in 20 U.S. cities rose for a fourth straight month.   The Case-Shiller home-price index increased 0.27% the prior month on a seasonally adjusted basis, after a 1.1% rise in August.  Year-over-year, the index fell 9.4% from last September 2008, which represents the smallest year-over-year decline since the end of 2007.

The strength in the existing home sales reported yesterday, aided by government stimulus programs and a decline in mortgage rates are helping to stem the decline in home prices.

So where do we go from here…?  I continue to believe that home buying and consumer spending in general will be hampered by higher unemployment, which is closely correlated to increased foreclosure activity.  This will limit the improvement in sales and thus pricing trends as we head into 1H10.

Other issues to consider when thinking about how far prices can improve from here are the current inventory overhang, the level of shadow inventory, continued foreclosures, and tighter credit standards which require more money down...

For the second day in a row, from an equity perspective, the MACRO housing data is not confirmed by the performance of the homebuilders.  The Homebuilders finished lower yesterday and the stocks are some of the worst performing stocks in the XLY today. 

Howard Penney

Managing Director

THE HOUSING CONUNDRUM - caseshiller

THE HOUSING CONUNDRUM - nar