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Tiny Home-Price Drop Is Best News Yet

You won't find it in the July 28 press release from Standard & Poor's, or in most news reports for that matter. But the most encouraging statistic from the S&P/Case-Shiller 20-City Composite Home Price Index report released on July 28 is that in May, seasonally adjusted prices fell just 0.16% from the previous month.

That minuscule monthly change works out to an annual rate of decline of a little less than 2%. That's a huge improvement considering that from last September through March, the index was falling at an annual rate of more than 20%. S&P's press release, and most news reports, focused on the unadjusted prices, comparing them with a year earlier and noting that the rate of decline had slowed.

Even some longtime bears were impressed by the data. Economist David Rosenberg of Gluskin Sheff & Associates (GS.TO) in Toronto wrote, "now this is a green shoot!"

Missing the Story To be sure, this is not definitive evidence that the housing bust is over. Prices and sales volumes could still take another tumble. For one thing, the $8,000 federal tax credit for first-time home buyers expires at the end of November. More important, the number of home foreclosures is continuing to mount, adding supply to the market at the same time that sales of new and existing homes remove supply. As long as the unemployment rate is around double digits, there will be downward pressure on the housing market.

You have to dig a little bit for the seasonally adjusted data, by the way. It's here on the S&P Web site. (S&P, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP).)

The raw, unadjusted index actually showed a price increase from April to May, but that's not the right number to focus on because prices typically rise from April to May—a fact that The Wall Street Journal's Web site missed in its article headlined "Home Prices Post Monthly Increase."
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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