Housing prices improved for the second straight month - However Housing Market Still Faces Danger of Drop -

Housing prices improved for the second straight month - However Housing Market Still Faces Danger of Drop - 

Housing prices improved for the second straight month, according to figures released on Tuesday from the S&P/Case-Shiller Home Price Indices. However, in a live Web chat conducted at HousingViews.com, Dr. David Blitzer, managing director and chairman of the index committee, said that the seasonal effect appeared to be increasing.

During the chat, Robert Shiller, professor of economics at Yale University, said he was still concerned about a further drop in housing prices for the rest of the year. In February he had predicted the possibility of a substantial additional drop of 10% to 25% over the next five years. While he said that recent data lowered the chance of that a bit, it had not eliminated the risk.

Asked for the three most vital factors to consider in determining the future of the housing market, Shiller cited recent data first. Other important factors, he said, are employment data and survey measures of home buyer confidence, “such as the National Association of Home Builders Housing Market Index or the data that Karl Case and I have been collecting about home buyer attitudes.”

As a whole, he said, the economy is “at a turning point and there is much uncertainty now.”

Blitzer pointed out additional trouble spots: the current difficulty prospective home buyers have in qualifying for mortgages, the coming reduction in size of conforming mortgages by Fannie Mae and Freddie Mac in October, and poor consumer sentiment overall.

Karl Case, professor of economics emeritus at Wellesley College, pointed out an additional factor that could affect the housing market for some years to come. Prior to 2000, he said, each downturn was marked by rising interest rates to combat inflation and a fall in demand. Because the housing market, unlike most markets, generally does not see a proportional fall in prices in response to lack of demand, production of new homes falls and households increase until the situation stabilizes.

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