Home Prices Notch Highest Gain since 2005

Home prices rising doesn't necessarily mean the housing slump is over or even anywhere near over. Read this sentence from a Wall Street Journal report: 

Home prices notched their strongest year-to-date gains since 2005, climbing 5.9% through July and signaling the housing market's steady trudge toward recovery.

Saying that home prices rose this year doesn't tell us much. It just says prices rose since January of 2012. And saying that's the highest year-to-date rise since 2005 says even less. Adding that this somehow signals something - "the housing market's steady trudge toward recovery" - is completely gratuitous. A rise in price over 7 months (the price rise is through July) doesn't make a trend of any sort.

The point here isn't to be negative, just to show how this sort of article doesn't really inform us of very much. But why should that stop the reporter from going on to a theory about how this will now lead an economic recovery!

For the broader economy, the turn in housing could provide a much-needed boost if it continues. Rising prices could eventually lift consumer spending if homeowners begin to feel wealthier again.

Even if homeowners do find their particular house goes up a few percentage points in value, how does that make them spend? By "feeling wealthier"? What does that mean? Homeowners will need cash to purchase things. The seller doesn't care that your home went up 5% in price. They'll still expect cash. And that's exactly the problem here. So few people have cash to spend.

But wait, the reporter has even more wonderful news for us:

Housing construction, a big generator of jobs, also has the potential to play a major role in economic growth.

Of course, a rise in house prices tells us very little about housing construction. All it tells us is that the price of current houses have risen. It doesn't tell us that more houses are being built. A rise in the price of existing houses does not mean the same as an increase in housing construction. But our intrepid reporter won't let that hold him back.

Rising home prices could shape voters' thinking about the economy in the home stretch before the presidential election. 

So this 5.9% rise now plays a role in the national election!

If you ever wondered what the phrase "much ado about nothing" means, this is probably as good an example as any. To top it off, this sort of rise in house prices may simply signal that inflation is heating up, rather than that any actual activity in the housing market.

Bottom line: If you don't read critically, the media can convince you of just about anything.

(You can read the rest of the WSJ article by clicking HERE.)