Housing Prices Increase 1.7 percent in One Month

The seasonally OFHEO housing price index increased 1.7 percent from December 2008 to January 2009 (+1.5 percent seasonally unadjusted).

So much for yesterday's "Housing prices plunge headline"!

For a while I have been saying that the housing market -- housing prices and construction -- would hit bottom in early 2009 and housing construction would be pretty normal by summer:

• I noted the OFHEO housing price index had already stopped falling before the end of 2008.
• I noted that construction prices were hardly falling any more (see also here).
• I noted that housing starts made a turnaround in February.
• Most important, I noted in 2008 that by summer 2009 population will have caught up with the housing stock.

It is helpful to compare the purchase price for a house to the cost of construction, because the higher is the former relative to the latter, the greater the incentive to build more houses. The chart below shows the monthly OFHEO housing price index compared to the PPI for residential construction: January 2009 is above every single month since July 2008!

You have to dig to find a headline on this, but here's one from AP "Home prices post 6.3 pct annual decline in January". Notice that the reporter is looking at the same data as shown above, but apparently needs a bad news headline in order to collect his/her paycheck, so that's what you get.