This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.

—Karl Case, following the most recent Case-Shiller data: via NYT

The monthly Composites cover June and the national index covers the second quarter, when the government’s program for first time home-buyers was winding down. While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead. Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year. Further, California’s cities have moved from some of the hardest hit to three of the four leading cities based on year-over-year gains. Among the other hard hit cities, the news is also a bit encouraging – Las Vegas, however, remains among the weaker cities. Seventeen of the 20 MSAs and both Composites saw home prices increase in June over May – Las Vegas was down 0.6%, Phoenix and Seattle were both flat. Through the second quarter, 15 of the 20 MSAs and both Composites have positive annual growth rates, and no market is registering a doubledigit decline. The worry starts when you remember that the Homebuyers’ Tax Credit has expired, foreclosures are still at high levels, and July data on home sales and starts were very, very weak. The inventory of unsold homes and months’ supply data were particularly troubling. If this relative weakness in demand continues, it will likely filter through to home prices in coming months.

—David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, balancing a strong report with caution about expiring tax-credits, foreclosures, July home sales and inventory: via S&P