Is the Housing Recovery Sustainable?

Home prices are rebounding, according to the latest data from S&P/Case-Shiller Home Price Indices. But will it last?

The national composite was up 1.2% in the second quarter of 2012 versus the second quarter of 2011, and the 10- and 20-City Composites posted respective annual returns of +0.1% and +0.5% in June 2012.

There were only six cities - Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego - where the annual rates of change were still negative. The housing market in Phoenix gained 13.9% and had the best year-over-year performance.

If home prices are going to stage a believable recovery, they'll need more than a few consecutive monthly increases.  

Even with the uptick, national home prices aren't really ahead, but merely back to the same level in early 2003.  

Also, don't forget the gains in 2010 were attributable to government tax incentives - not because of a self-healing market. Excluding this aberration, there still haven't been positive year-over-year gains in housing since December 2006.

What about the 10 million mortgages that are underwater? Over-indebted consumers weigh on the broader economy and constrain spending.

National unemployment (U-6 figures) are stuck near 15% and unless joblessness decreases, future gains in the housing market will be limited. 

Interest rates for a fixed 30-year mortgage are still rock bottom and hover around 3.17%. But here too, buyers have been slow to pull the trigger - either waiting for lower property prices or uncertain about taking on the load of a new mortgage.Housing related ETFs like homebuilders (NYSEARCA:ITB) and apartment REITs (NYSEARCA:REM) have surged by 50.72% and 25.02% year-to-date, respectively.

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