7 Metro Areas Riding a Housing Bounce

Next week, those with a stake in the housing market will be eyeing the September reading of the S&P Case-Shiller home price index, which will offer some local resolution on the state of the housing recovery.

Those numbers – which will be read and debated by buyers, sellers, economists and pundits – will help shed light on several regional markets, but more importantly, they’ll answer a key question: Do the latest pockets of housing strength represent legitimate bounces or statistical flukes?

Over the last couple months, the Case-Shiller index had been pointing to a national market that’s slowly improving. The 20-city composite was 1.2% higher in August compared with July, but home prices overall are currently at 2003 levels.

At last glance, the best-performing markets were Minneapolis, where home prices were up 3.2% in August versus July, and San Francisco, which saw a 2.8% rise, and Detroit, where prices gained 1.9%.

The Case-Shiller index has indicated several months of modest improvement in home prices, but it’s still showing double digit year-over-year declines.

“While we have turned a corner, we’re at the very incipient stages of a fragile and limited housing recovery,” says Stuart Gabriel, the director of UCLA’s Ziman Center for Real Estate.

Several federal policies have contributed to steadying home prices. One was the first-time home buyer tax credit, which was recently extended and expanded to include existing homeowners. Interest rates on mortgages have been remarkably low, mostly because of the Federal Reserve’s program to support the mortgage lending and housing markets by buying up billions in mortgage-backed securities.

Some of the markets that have been seeing price gains were among the hardest hit areas – an encouraging sign – but month-to-month fluctuations don’t necessarily indicate a trend. And in this case, small sales gains could appear magnified against big drops. Cities like Detroit, San Diego and Los Angeles endured such big collapses, that each was able to report a large percentage increase in sales with a relatively modest number of actual homes of sold.

SmartMoney took a look at the seven markets that have shown the most significant upticks in home prices and assessed the local impact and sustainability of those gains.