Home-price rise: A Phoenix bounce – or Denver let-down?

When the most pessimistic of America's housing indexes turns positive, it's important to pay attention.

The average home price in the 20-city S&P/Case-Shiller index rose nearly 1 percent in June, the first such rise since May 2006, according to a report (.pdf) released Tuesday. Even cities at the heart of the housing slump – like Phoenix – showed prices on the upturn.

There are several reasons to view all housing data with a skeptical eye. Still, as a rough barometer, they can give a rough idea of how quickly housing markets will recover. Just as with the economy in general, analysts are trying to figure out whether the shape of the housing recovery will be a V, a U, or a W.

So will the US housing market going forward look like Phoenix, Chicago, or Denver?

Phoenix could shape up as a classic V. Housing prices more than doubled between 2000 and 2007, then fell all the way back to 2000 levels in the ensuing 18 months. If you factor in inflation, it is now cheaper to buy the median home in metropolitan Phoenix than it was in January 2000.

It's very possible that the housing market there has plunged too far. The 0.4 percent uptick (seasonally adjusted) between May and June could be the start of a big correction.

Chicago, whose prices didn't climb as high, has enjoyed a three-month recovery – but only registered a tepid 1 percent increase over than period. Its recovery could follow the U pattern.

Denver, by contrast, has seen a couple false starts in a housing recovery – a classic W. The metro area never fully participated in the housing boom, so its bust was limited, too. Prices climbed 39 percent between 2000 and 2006 and have now fallen 10 percent, back to 2003 levels.

What's more troubling is that Denver's previous upturns – in May 2007 and March 2008 – fizzled and housing prices fell to new lows. Will its current four-month rally be any different?

The encouraging news is that most cities – 16 of the 20 covered by Case-Shiller – are also on the mend.
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