Home prices appear to be the silver lining of the housing market today, as one of the main indicators showing consistent signs of improvement and recovery. Most reputable indices show that home prices have bottomed and are now rising. Because most consumers view the recovering housing market as a major proxy for the health of the economy any meaningful or sustained decrease in those indices will have a damaging impact on consumer confidence. And given the seasonality of the housing market today, we could be in store for less optimistic home prices in the winter months.
On Wednesday, October 24, the Federal Housing Finance Agency (FHFA) will release the Monthly Home Price Index for August 2012. In the last month reported, home prices rose very slightly by 0.2 percent from June to July. The S&P/Case-ShillerHome Price Index also reported small gains for the same month.
While it looks like the home prices are generally trending upward now, the seasonality of the housing market does raise concern for the upcoming winter months, where it is likely that the slow buying season will manifest itself in home prices.
Last year, in the winter of 2011, we saw the same thing. Home prices dipped down in the forth quarter and dragged consumer confidence down with it. The two measures didn’t begin to improve until the spring buying period began.
If the same pattern is repeated this year, I would predict that consumer confidence would again be pulled down by lower home prices. Home prices are very visible to consumers – to underwater homeowners, to homeowners looking to sell their property, and to potential homebuyers. And if these consumers see weak home prices, rental rates are likely to remain high, while residential housing indicators see a reversal of the gains made earlier in the year.