It would seem that the US housing market - arguably the Achilles heel of the global financial morass - is finally looking up.

Following the announcement on Monday that the inventory of unsold new houses in the US had dropped from 10.2 months' supply to a three-year low of 8.8 months' supply, the S&P/Case-Shiller Home Price Indices yesterday showed an increase on a monthly basis in May for the first time since July 2006. Thirteen of the 20 metro areas reported positive returns, with the 20-City Composite rising by 0.5%. Although not yet in positive territory, the seasonally adjusted monthly figures nevertheless represent a significant improvement, with the 20-City down by only 0.2%.

Source: Asha Bangalore, Northern Trust - Daily Global Commentary, July 28, 2009.

The 20-City Index declined by 17.1% compared with the same month last year. After 16 consecutive months of record annual declines, the indices have now shown four consecutive months of improvement in annual returns.

Confirmation of better tidings for the US housing market also comes from the stock market in the form of a monthly graph of the Philadelphia Housing Index. Of particular interest is the RSI indicator (bottom section of chart below) - a momentum-type oscillator fluctuating between overbought levels above 70 and oversold levels below 30. The RSI line gave a sell signal at the peak of the housing boom in 2005, and has now turned up to its highest level in two years and breached a four-year downtrend. The chart would seem to indicate a bottoming of the Housing Index.

Source: StockCharts.com

It seems that US housing may finally have plumbed the depths of the crisis, but this does not necessarily spell a rapid turnaround. David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, summarized the situation as follows: Stabilizing residential real estate prices are absolutely an essential ingredient in transitioning out of the recession, though inventories are still far too high to warrant a sustained upturn. Bottoming is one thing, booming is quite another.

U.S.