By ANDREW JEFFERY

This post first appeared on Minyanville.

This week, 2 data points led optimistic market-watchers to declare the bottom in the housing is nigh: Indeed, one widely read trader-writer proclaimed, “The oversupply of housing that so plagues the market at present will be a figment of our memory a few months hence.”

The first: On Monday, the National Association of Realtors said existing home sales jumped 5.1% in February compared to the previous month, largely due to the high number of foreclosures being dumped onto the market by big banks like JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC).

While indicative of buyers gingerly dipping their toes back into the market, existing home sales are still down 13.4% from a year ago.

The second: On Wednesday, the Commerce Department released data on February new home sales which showed a similar trend: Transactions bounced 4.7% from January, but remain a whopping 41% below sales this time last year. Nevertheless, shares of beleaguered homebuilders like Centex (CTX) and Lennar (LEN) had stellar performances this week, capping a nearly 100% gain since the beginning of the month.

Prices, however, continue to slide for both existing and new homes. And while median (and average, for that matter) price data is skewed to the downside due to the mix of homes sold in a given period — in this case, more cheap houses than expensive ones — property values remain in a decidedly downward trend.

But since transactions typically find a bottom prior to prices, the number of people who believe prices should stabilize in the near future is growing.

Examining the data, unfortunately, tells a different story. Below is a chart produced by my firm, Cirios Real Estate, showing home prices and sales transactions in for the eastern part of the San Francisco Bay Area. The East Bay is a fairly representative sample of California housing markets: A little high-end, a little middle-class and a little low-rent all mixed in.

Click to enlarge

The red line shows average home prices, while the blue line shows sales transactions, as measured by their change from a year ago. Notice how, even as sales have spiked from the previous year, prices continue to plunge.

Two things jump out at me on this graph (aside from the massive increase in transactions and precipitous decline in prices):

First, transactions began to ramp up as prices moved down toward levels where borrowers could get government-backed loans to buy homes. That means Fannie Mae (FNM), Freddie Mac (FRE) and the FHA have financed a whole swath of homes in the past 18 months that are now severely underwater.

Second, transactions bottomed in September 2007, not long after the market peaked. 18 months have passed and prices have dropped more than 50% since that time.

With that in mind, the current “euphoria” over housing data — after a single month-over-month increase in sales, when year-over-year measures remain well behind even last year’s weak totals — seems a bit premature.

This is not to say prices will never stabilize, or that increased sales are a bad thing. In fact, the more sales we have, the quicker price discovery happens and the faster a true bottom can be found. Nor is this some proclamation that this part of California is a perfect proxy for home prices nationwide.

But given the backlog of foreclosed homes sitting on the books of the major American banks, continued price declines across the country and tight mortgage market conditions, calls for the devouring of supply by voracious home buyers causing an imminent housing bottom is downright premature.

To be sure, we may be one step closer to a housing bottom, but that’s one step on a very, very long path.

By ANDREW JEFFERY

In contrast to the silver lining of higher-than-expected home sales tallied in yesterday’s release of Existing Home Sales, this morning’s Case-Shiller November Home Price Index registered the worst year-over-year performance on record.

Property values in November 2008 tumbled 18.2% from the prior year and 2.2% from the previous month. As measured by the Case-Shiller’s 20-city index, home prices have retreated 25% from their mid-2006 peak and now sit close to levels not seen since 2004.

Like a CD stuck on repeat in the guy down the hall’s dorm room while he is away at class (you try listening to Chumbawumba’s Tubthumping for 3-hours straight and not being driven to drink at 3pm), annual price declines were the worst in Phoenix and Las Vegas, followed by San Francisco, Miami, Los Angeles and San Diego.

News that home prices are falling, however, isn’t exactly news. So let’s look at what this Case-Shiller Home Price Index is anyway, and how it differs from the less murky Median Home Price data released every month by our friends at the National Association of Realtors (the NAR).

As Cirios statistics’ wizard Austin Nelson explained last week, the median home price is simply the middle price in a list of sales. So, the NAR grabs data on all home sales in a given month and picks out the one with the same number of sales on either side. The logic behind using this measure, rather than the more commonly understood average, is that it reduces the effect of outliers, or sale prices that are either much higher or much lower than the prevailing trend.

Case-Shiller, on the other hand, uses what are known as “paired sales” to evaluate home prices. By examining sales in a given month, then looking back to find the most recent sale price and date for each house, statisticians are able to back into an annual rate of decline.

For example, if house A sold in November ’07 for $250,000 and again in November ’08 for $200,000, Case-Shiller would say the annual home price decline was 20%. By limiting the search only to sales that have a relevant pair (ie, previous sale), the methodology limits sample size, potentially leaving margin for sampling errors. Sample size is something I’ll let Professor Nelson explain in further detail at a later date.

So, which method is better, paired sales or median price? As is typical with such economic questions, the answer is a resounding neither.

Median Home Price measurements provide good information about the distribution of sales, and in the current environment reflect that since Jumbo mortgages are nigh impossible to get and foreclosure sales are driving most markets, cheaper houses are selling far more often than more expensive ones.

Case-Shiller, on the other hand, represents a more accurate level of home price declines for specific homes — far more important to the average homeowners. Of course, a number slapped on a metro area is fairly meaningless when it comes to an individual property, but it’s still more useful than a bucket of houses being sold for different reasons by different sellers in different neighborhoods.

With Case-Shiller a month behind the NAR data, keep an eye out next month to see if the silver lining found in December’s median home sales data is reflected in the paired sales analysis. If it is, you can be sure calls for a bottom in housing will once again abound.

By ANDREW JEFFERY

It should come as no surprise that with headlines screaming financial Armageddon and the stock market making new lows seemingly every day, last November wasn’t exactly a great month for the housing market.

This morning, the National Association of Realtors, or NAR, released its Pending Home Sales Index, which measures signed contracts that are expected to turn into sales. The data were abysmal, showing a 4% decline month-over-month to a reading of 82.3, the worst since the data has been tracked. Unsurprisingly, economists — who have been squarely behind the curve at each step of the ongoing financial crisis — expected a mere 1% drop, despite widespread turmoil in financial markets during both October and November.

Yet even with the continued slide in home prices, our good friends over at the NAR are optimistic for 2009 (Ahh to be a lobbyist and completely detached from any shred of reality). This outlook should come as no surprise, as the group has been wearing rose colored glasses since the housing downturn began in late 2005.

To counteract the negativity in their Pending Home Sales Index — which is inconveniently based on actual data rather than farcical forecasting — the NAR also released a report today predicting home prices will be flat in 2009. It even went so far as to forecast an increase in the median price of new homes.

The prediction displays the sheer audacity of a group whose very existence relies on convincing buyers its a great time to buy, irrespective of actual market conditions.

Despite an increase in buying activity in certain distressed markets, home prices are falling, and will continue to fall until supply and demand become rebalanced. This will not happen as long as homebuilders keep building, companies keep laying off employees and banks keep tightening lending guidelines.

And while it’s certainly beating a dead horse to say the decline in home prices will persist, sometimes the horse needs to be beaten.

Too many prospective buyers, eager to jump on attractive deals, will step in too early and be underwater (owing more on their house than it’s worth) almost immediately after the receive their new keys. This unenviable position traps a homeowner, making a job loss or other economic misfortune that much more dire.

There will be more than ample opportunities to buy houses on the cheap when prices have stabilized, and prudent buyers should continue to wait, save their pennies and let others, bolder yet perhaps less wise, catch the falling knife.