Nationally, October home prices increased a modest 0.4% over September 2009, a seasonally adjusted figure. Without the seasonal adjustment, absolutely no increase occurred in home prices. Thus, it appears the burgeoning national housing recovery may already be losing steam from its stronger growth earlier this year.

Trends are more positive in the Golden State. Bucking the national tide, three major California metropolitan cities experienced solid gains in October over September of this year. Homes prices are up 1.7% in San Francisco (the seventh consecutive month of gains), up 1.1% in San Diego (the sixth consecutive month of gains) and up 0.7% in Los Angeles (the fifth consecutive month of gains). However, this level of growth has not been felt uniformly across the state. Markets in the less densely populated Central Valley and Inland Empire are still plagued by frequent foreclosures, hindering the momentum of a real recovery.

first tuesday take: The increase in home prices in California is impressive when compared to the nation at large, but then we started recovery from a much lower level of sales. California was one of the first states to feel the damaging (and worst) effects of the bursting housing bubble, and it’s comforting to presume we’ll be the first to experience a steady recovery. However, this is simply not the case.

Though our home price numbers are impressive at first glance, it must not be forgotten that this recovery, both in California and on the national stage, has been artificially induced by massive and unprecedented subsidies from federal and state governments. The first-time homebuyer tax credit has sparked a greater volume of home sales in the short term, and the Federal Reserve’s (the Fed’s) persistent downward pressure on their key short-term interest rates have created a bucolic, though artificial, environment for borrowing homebuyers. Which begs the question: will California’s home price numbers retain their luster after government agencies stop playing Svengalli and cut the strings holding up California’s real estate market? Only then can we accurately determine whether the public’s demand for housing has been reestablished and is healthy again. That could well be the fact, but a true return to market fundamentals will need to occur for us to get there.

While the Golden State will not collapse without its federal crutch, neither will home sales continue on this same trajectory. Thus, the shape of future real estate recovery (and that of the recession itself) will look like a hybrid L-W curve, what we at first tuesday call the “aborted checkmark.” Home prices will increase as is happening now under the federal stimulation outlined above, but once the stimulus stops this spring, the “checkmark” will crest and home prices will flat-line.

Re: “U.S. home prices are flat, but L.A. fares better and Vegas worse,” from the Los Angeles Times