Earlier this week, the 20-city Case-Shiller house price index was released for the month of November 2012, which revealed a seasonally-adjusted 0.6% rise in values and a 5.6% increase over the year (see next chart).
The annual rise in home values was the biggest since January 2008, and combined with the recent increase in new home construction, suggests that a housing recovery is now well and truly underway in the US (see next chart).
However, there are reasons to suggest that the housing recovery might not be sustainable. As noted recently, the University of Michigan Consumer Sentiment Index has registered big falls over recent months and represents the lowest consumer sentiment reading since December 2011 (see next chart).
The result was supported by this week’s release of the alternative Conference Board Consumer Confidence Index, which fell for the third month in a row to 58.6 from 66.7 in December, and is now in territory typically associated with past recessions (see next chart).
Both consumer sentiment measures appear to be strong leading indicators for US house prices, suggesting that unless confidence stabilises soon then the recent price rally would come to an end (see below charts).
Sentiment has no doubt been hit by the fiscal wrangling in Washington. And reports emerged overnight that the US Congress is unlikely to avert $85 billion of across-the-board “Sequestration” spending cuts from hitting federal government agencies on March 1. If the deadlock is not broken, and the cuts go ahead, US consumer sentiment and growth are likely to take further hits in the months ahead, which could stifle the housing recovery.
