Cleveland leads the way out of the housing bust

The new S&P/Case-Shiller house-price numbers came out today. They're for August, so the onset of full-on financial panic in September isn't reflected, but the news was bad enough: The pace of decline had slowed sharply in April and May and stayed low through July, but now appears to be on the rise again. That may just be a seasonal issue (home sales, and thus prices, are usually strongest in the summer), but it's not encouraging.

One of the few genuinely encouraging signs in the data is that Cleveland may be done with its housing bust, with prices in the Cleveland area rising in August for the third month in a row. Cleveland's housing bust is very different from the one playing out along the country's coasts: House prices never rose all that much in there, and they stopped rising there a year before the bust went national (summer 2005 vs. summer 2006). Here's the chart, going back to January 2000:

Cleveland's house price decline was the product of a regional recession, not the bursting of a housing bubble. It's possible that the declines will return there if the national recession gets much worse. And while one really can't extrapolate Cleveland's experience to the national picture, it's interesting to note that Cleveland is now back to bottomed out at the house price levels of February 2002. To bring prices nationally (or at least in the big metro areas represented in the Case-Shiller 20-city index) back to February 2002 levels, we'd need another 26% price drop (on top of the 20% we've had so far). And I called the news from Cleveland encouraging?