In the last few months, the various indicators for the US housing market have been widely reported as stabilizing at lower levels.
The systemic stress at national level for the US market appears to have been largely mitigated during last few quarters, as shown the chart below:
Chart 1: Range of correlations in regional housing price data
Source: Case Shiller Indices, Decimal Point Analytics
The above chart shows the range of correlation in the regional housing markets and the median correlation in the regional housing markets in the USA.
The above chart shows that during periods of both, resounding housing booms and housing crashes, the range of correlations become narrow and the median correlation starts to move higher. On the other hand, widening of the correlation range and lowering of median correlation characterize periods where market changes direction or takes a breather.
During last few months, the range of correlations have expanded and the median correlations have fallen significantly, indicating a possible change of direction in housing prices.
No doubt, the sustainability of this trend is dependent on the continuation of Fed’s easy money stance, coupled with favorable government policies for resolution of overhang of excess supply still to be cleared from the previous boom bust cycle.
Does the above mean that US housing is truly returning to stability, or is it just a false dawn driven by easy liquidity and the foreclosure mess?