A Bottom, Not THE Bottom for House Prices

Tuesday had two noteworthy news items: the Case-Shiller indexes of house prices rose for the first time in almost three years and the Conference Board’s measure of consumer confidence fell again. Most market comments attribute today’s stock market malaise to the latter; we’re sure if the eqity indexes were higher, the house prices would grab headlines.

Case-Shiller 20-City Index with Monthly and Quarterly Coppock Curves

For our part, we believe that the uptick in the Case-Shiller data is nothing more than a precursor to a relief rally. That rally may take some months to play out, but it will probably be followed by another downtrend. We say this for two reasons. First, the momentum background is at “bad oversold” or confirming levels. Typically this means that the price low associated with this condition is the first low, not the low; a rally-then-test sequence is the usual course of events. Moreover, the momentum condition suggests that the housing pressures are secular (15-25 years) in nature, not cyclical (about four years +/-). Second, there is no nearby chart support for the 20-city index. The index may have to eventually fall to levels last seen in 1997 before it finds support. If so, that would imply a decline of 50% from current levels before the secular decline runs its course.

All in all, a rally in house prices in the months ahead may be an opportunity to become a renter.