This post first appeared in the April edition of: Cirios Trends: In Search of Real Estate Opportunities.

For 12 months now, the Case Shiller Home Price Index - the most widely watched home price indicator - has been hinting that the housing market has at the very least stopped getting worse. In February’s Cirios Trends, we examined housing’s relationship to the stock market and how last April’s nadir coincided with lows in equities. (For more on home prices and stocks, flip to the charts in the back of this month’s issue for some interesting graphical analysis.)

But back to the data. This month we also received two more signs that the economy, at least on paper, is doing a bit better. First, last week’s employment report showed a meaningful jump in non-farm payrolls for the first time since the recession began. Second, that same Case Shiller Index registered a year-over-year change of nil, the first time prices didn’t slip from the previous year in more than four years.

And looking below at the state of office vacancies, despite hitting the highest level since the 1990s, the rate at which office space is going dark appears to be slowing.

So is that it, are we out of the woods? Not exactly.

Data is easily manipulated and subject to bias, even when its collectors have the best intentions. Let’s look at Case Shiller and dig into just what the data tell us.

Case Shiller looks at paired sales to determine home price changes. In other words, researchers compare sale prices of individual homes in a given month to the last time that house sold. Add in a bit of statistical wizardry and you have a pretty good metric for home price changes over time.

Case Shiller is also considered a value-weighted measure, as it weighs more expensive homes more heavily than cheaper ones. This makes some sense, since otherwise the relatively small number of high priced sales would get lost in the mix.

The implications of this is that an increase in the Case Shiller Home Price Index could either indicate true appreciation, or a shift in data where if more higher priced homes started selling, prices would look like they were rising when in fact, it was something else entirely.

Case in point: Livermore, CA - one of the cities we highlight in this month’s Talking Charts. By measuring price per square foot, which we use as a broad proxy of value, it appears that prices have flat lined for the past 12 months or so. Meanwhile, looking at median prices (a metric commonly used by the National Association of Realtors), prices are up 13.4% in the past 12 months. Quite a difference.

As we edge forward, keep in mind that there is more going on underneath the data than it appears. Always look at trends on as defined a level as possible. Look at cities not countries, zip codes not cities, neighborhoods not cities. Only by drilling deep into the data will it truly help you make better real estate decisions.

The housing market got another boost this morning, as July’s S&P Case/Shiller Home Price Index registered its biggest monthly increase in almost four years. The 20-city index rose 1.2% in July from the month before, the biggest jump since October 2005, according to Bloomberg.

Even though the monthly price figures have been increasing now for the last few months, year-over-year prices are still down. However, declines are becoming less severe.

And the debate continues as to whether this reflects a legitimate housing recovery or whether the Case/Shiller data — which is not seasonally adjusted — is simply reflecting the strong summer buying season, made stronger buy vast government support and banks’ reticence to list their inventory of REO properties.

As the months roll on, we’ll be keeping a careful on eye on the data to try and determine just how real this recovery is. And remember, Case/Shiller data lags, here we are almost to October and just now finding out what happened in July!

Market imbalances are resolved through two primary mechanisms: Time and price.

To be sure, the imbalance in new homes remains, despite a recent uptick in buying activity in real estate markets across the country. And as builders slash prices and time drags on, slowly but surely the backlog of newly constructed homes is being worked through.

New home sales ticked up 0.7% in August from the month before, registering the highest total in almost a year, according to Bloomberg. Although the increase was less than analysts expected, it continues the uptrend in place since this summer.

Meanwhile, prices keep falling. The median price of new homes tumbled 9.5% from July, the biggest drop since records began in 1963. This drop is primarily a result of homes less than $150,000 making up the lionshare of sales.

While the increase in sales is good news for market watchers eager to see inventory levels chewed through, fire sale prices push out any eventual recovery. Until it is economic for builders to build new homes, vacant land will remain exactly that, vacant, as landowners bleed cash on upkeep and maintenance. But in keeping new homes off the market, this correction will help speed up the broader housing recovery as inventories of all homes return to more manageable levels.

The resolve of the nascent US housing market recovery is about to be put to the test.

Existing home sales slipped in August, breaking a string of four straight months of rising sales. Purchases fell 2.7% in August from the month before, which was below analysis expectations, according to Bloomberg,

One kernel of good news was that the inventory of unsold homes gapped down 11% to 8.5 months of supply, the lowest level since April 2007. In addition to the brisk summer buying season, this figure also reflects banks’ reticence to list REO properties on the market, which is keeping inventories lean. Housing experts generally agree that 7 months of supply represents a stable market.

As autumn rolls on and gives way to winter, home buying typically dries up. During the next few months sales data will be very telling in determining whether this recovery is for real, or just a dead cat bounce on the way to new, painful lows.

Homes under contract to buy rose in July for the sixth straight month, reaffirming the widely held view that the worst of the housing market correction is behind us. The index of pending home sales rose 3.2% from the month before, according to Bloomberg.

Even Mark Zandi, the famously bearish chief economist at Moody’s Economy.com, said “The housing market is much improved.”

Indeed, buying activity is strong, and some markets could even be described as “hot,” with little inventory and many multiple bid situations. Ultimately, the question is the sustainability of this “rally” in the low end markets, and how things will shake out of the government starts to ratchet back it’s support of the housing market.

Optimism about the housing market is reaching near-unanimous levels. Sales of new homes in July rose 9.6%  from the month before, the biggest jump since the height of the housing boom in 2005. According to Bloomberg, inventories of new homes also fell to the lowest level in 16 years.

Purchase activity was the strongest in the Northeast, where sales leapt 32%. Meanwhile, out West, sales increased just 1%. This is an interesting trend to note, as thus far in the market’s correction the West has been a leading indicator for the rest of the country. That sales appear to be stagnating out West should be concerning for those hoping for a legitimate recovery.

The ultimate question is whether this bounce, which has been spurred largely by government intervention in the form of tax-incentives, low interest rates and support for the capital markets can be sustained through the traditionally slow fall and winter months. Time, it appears will be the true arbiter of the nascent housing recovery.

Broad measures of home prices continue to show improvements, as the S&P/Case Shiller Home Price Index registered its second straight monthly increase. According to the Wall Street Journal, Case Shiller’s 20-city index ticked up on a quarterly basis 1.4% from the three months ending May 31.

2 cities still showed month-over-month declines, woeful Detroit and Las Vegas. The only cities showing single digit annual declines, Dallas, Cleveland, Denver, Boston and Charlotte, were some of the markets that held up longer than most, and are still in the early stages of their price correction.

Yale’s Robert Shiller, who along with Carl Case devised the Case-Shiller Home Price Index, warns that despite the positive data, foreclosures and job losses could still hamper any legitimate housing recovery. Mortgage defaults, especially in the Prime market, continue to rise, which is leading to increased inventory and falling prices in high-end real estate markets around the country.

The experts at Cirios Real Estate are watching the data closely, especially as the summer buying season shuts down and we move into the traditionally slow fourth quarter. This transition will be the first true test of this housing “recovery.”

Eclipsing even the most optimistic expectations, July existing home sales registered a 2-year high this morning, jumping 7.2% from last month. According to Bloomberg, the National Association of Realtors (or NAR) reported that transactions climbed to a 5.24 million annualized pace, the highest rate since August of 2007.

NAR chief economist Lawrence Yun, the man who asserted the housing market’s slide had stopped back in 2006, is now quite certain the worst is behind us: “We are bouncing back, but we still need to wait until year-end before we see price stabilization.”

While on the surface, this report appears to be filled with nothing but rosy news, there is a kernel of caution amongst the positivity. Despite a jump in sales, inventory levels remained high, at 9.4 months’ supply. In other words, as buyers are coming back into the market, so are sellers.

This is a dynamic we have discussed previously here at Cirios Real Estate, and is a primary reason we are more cautious than most when it comes to this nascent housing market recovery. Even as some markets may stabilize, others will continue to fall until prices return to more sustainable, affordable levels.

Want to know which category your market falls into? Contact Cirios today!

The bounce rolls on. This morning, US Homebuilders gave their most positive outlook on the market in the past 12 months, as the National Association of Homebuilders/Wells Fargo Housing Market Index ticked up to 18, from 17.

To be sure, 18 is a dismal reading, but builders appear to see a light at the end of the tunnel. The question, of course, is whether that light is the end of the tunnel, or a train.

NAHB Chief Economist David Crowe echoed the positive sentiment:

“There is definitely a sense of hope among builders that the worst of the downturn is over and that a turning point is near at hand. Meaningful action by Congress could ensure that this upward momentum continues and that housing can help push the economy back onto solid ground.”

Builders have slashed prices to keep up with falling property values, as first time homebuyers and investors alike snatch up bank owned homes at what they perceive to be firesale prices. And with the current limited supply of foreclosed properties on the market, eager buyers may once again be turning to newly built homes.

Positive data continues to emerge from the housing market, as buyers take advantage of home prices that have fallen dramatically from their peak, along with low interest rates, tax credits and a stock market that can’t seem to be kept down.

Pending Home Sales in June, which measure signed purchase contracts and are often examined as a forward looking measure of closed sales, rose 3.6% from the previous month, outpacing economists’ expectations. The index chalked up its fifth consecutive increase, according to Bloomberg.

Analysts were cautiously optimistic, citing a moderate uptick in sales against a backdrop of a weak employment outlook and very constrained consumer credit market. According to senior economist at New York-based 4Cast Inc.,

“It’s a modest recovery, however these numbers are exceeding peoples’ expectations. While there are genuine signs of recovery in housing and manufacturing, the consumer is still the big sort of worry,”

As talk of a rebound in housing continues to gain steam, it’s important to understand the distinction between “stabilization” and “recovery.” The former does not necessarily imply the latter. For more on this topic as it relates to the broader economy, check out this excellent article from Minyanville, by finance expert Satyajit Das.