[achiever]

Markets cheered on Tuesday when the Case-Shiller house price index was reported to have risen month-onmonth in May after falling 33% since June 2006. However, although the pace of decline has clearly slowed from the 2%-per-month rate post-Lehman, some doubt whether the bottom has been found yet. For one thing, the seasonally adjusted version of the Case-Shiller index, reported later on Tuesday, was still down for May. More fundamentally, there are far too many homes for sale and the foreclosure rate is actually increasing, despite government efforts to slow the trend. The inventory of new homes has been reduced sharply, which is good news for housing starts and should help them climb gradually upwards from current very depressed levels, supporting the economic recovery. But there are still 3.8 million second-hand homes for sale, compared with the ‘normal’ level of only 2-2.5 million in 1999-2004, before the bubble burst. Analysts still expect a 40-50% peak-to-trough decline in house prices, which means there is another 10-25% decline yet to come. With home prices falling, banks losses from mortgages will continue to mount and household balance sheets, although relieved somewhat by the rally in stocks, still face erosion. The Conference Board’s measure of consumer confidence unexpectedly fell back this week, underlining that the road back to a healthy consumer sector is a long one.

[Chiquita]

asculta radio romantic