Here's an evaluation of the latest housing reports, from the most sobering to most encouraging.
The Case-Shiller Chiller
The most distressing recent report has to be the S&P/Case Shiller Home Price Survey, whose 20-city index declined a seasonally adjusted 0.4% in December from November, and 2.4% on a year-over-year basis.
Home prices as measured by Case-Shiller have now declined for five straight months -- erasing almost all of their gains since the recession ended in June 2009.
Although the 20-city index remains above its spring 2009 low, 11 cities -- Atlanta, Charlotte, N.C., Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland, Ore., Seattle and Tampa, Fla., -- hit their lowest levels in December since home prices peaked in 2006-2007, Case-Shiller said.
The brightest of the limited hopeful spots in the latest report was Washington, D.C., where prices rose 1.1% in December from November, on a seasonally adjusted basis. Other December gainers included Dallas, up 0.8%; Boston, 0.6%; Cleveland, 0.2%; and Denver, 0.2%. Prices in Charlotte and San Diego were unchanged.
The other -- highly qualified -- silver lining in the Case-Shiller report is that the latest survey available is for December, which trails the current market by two months. Given that housing activity historically increases in the spring and summer, it's conceivable the price dip could have ended in the two months since.
New-Home Sales Flounder
Unfortunately, two housing reports based on more recent data -- the new-home sales and existing-home sales surveys -- don't do much to clarify the sector's condition: They send either conflicting or complex signals about the real estate's direction.
Equaling distressing, new-home inventories rose to a 7.9-month supply in January at the current sales pace, up from seven months in December.
Although the median sales price in January rose 5.7% to $230,600 compared to a year ago, even assuming strong GDP growth of 4% in 2011, it will still take at least three quarters -- probably longer -- for new-home sales to return to a more normal annual range of 700,000 to 800,000 units.
With 2010 new-home sale data now in the books, the pattern is obvious: This metric has stagnated near 300,000 since the end of the homebuyer tax credit in September for contracts signed by April 30. It will likely take an increase in organic demand or another tax incentive to get new homes selling in a more sustained way. Absent that demand and given high inventories, new-home prices will struggle at best, and many markets will probably see further declines.
At Least Affordability Is "Extremely Favorable"
However, January's existing-home sales data provides some encouragement for real estate agents and home sellers alike. These sales increased 2.7% to seasonally adjusted 5.36-million-unit annual rate -- a 5.3% gain compared to a year earlier, according to data compiled by the National Association of Realtors.
In a statement, NAR Chief Economist Lawrence Yun characterized the sales uptrend as "consistent with improvements in the economy and jobs, which are helping boost consumer confidence."
"The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit," Yun said. "As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity."
At the 5.36 million-unit pace, existing-home sales have essentially normalized in the wake of the housing bust. The still-high inventories largely reflect the overbuilding that occurred during the 2002-2006 housing bubble, and the increase in properties listed for sale is due to rising foreclosures.
The Right Move for Homebuyers
In short, the latest housing data reveal a complex, uneven recovery, with areas of sluggishness and even declining prices.
In light of that, the best strategy for potential homebuyers on a risk-return basis appears to be to wait three months or so. As Mick Jagger and The Rolling Stones sang, "Time is on your side, yes it is." Here's why:
Even in the stronger markets, prices probably won't rise substantially in a quarter. And there's a decent chance they may move sideways, or even retreat, given the current high inventories. That's to the potential buyer's benefit, assuming mortgage financing terms remain the same. All of which suggests it's worthwhile to wait three months to see if prices remain firm.
And in the weaker markets, common sense argues that amid declining prices and high inventories, an unusually large increase in demand would have to occur to change the trend and push prices substantially higher in a quarter. For these weaker markets, the probability that waiting will benefit potential buyers is even higher.
Keep Mick in Mind
Of course, anomalies in niche markets -- such as resort areas -- almost always occur, and some trendy areas will recover more quickly. It wouldn't be surprising to see the cosmopolitan markets of San Francisco and Manhattan experience price rises ahead of any broader recovery.
But outliers aside, unless you've spotted your dream house and you simply must have it now, it probably will pay to wait a quarter to confirm that home prices aren't weakening further. Keep humming that Rolling Stones tune, and remember: Time is on your side.