BusinessWeek is reporting Housing strong in many metro areas.

From Salem to Salt Lake, 97 of 149 markets saw an increase in median home prices in the second quarter of 2007.

As home sales slide, foreclosure rates rise and big lenders go bankrupt, it’s hard to think of the glass being half-full, rather than half-empty, when it comes to real estate these days.

Unless, that is, you live in Salt Lake City. Or Binghamton, N.Y., Salem, Ore., or Allentown, Pa. In these U.S. metropolitan areas, and in 93 others, existing-single-family-home prices actually increased in the second quarter of 2007 from a year earlier, according to the National Association of Realtors. The national median home price, meanwhile, fell 1.5%, to $223,800, in the same period.

Despite the national decline, there are some bright spots out there, according to the NAR. “Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming out in the fourth quarter of 2006,” NAR senior economist Lawrence Yun said in a statement.

A Serious Credibility Issue

I can see right now already that Lawrence Yun is going to have all the credibility that David Lereah had. None. I will get to my reasons in just a bit.

In the meantime let’s consider the LA Times article Home prices fall 3.2% in nationwide index.

A much-watched report Tuesday showed U.S. home prices declining at their fastest pace in two decades, signaling that the nation’s housing slump was worsening during what is normally the best time of year for residential real estate.

Home prices dropped 3.2% in the second quarter compared with the same period last year, according to the S&P;/Case-Schiller quarterly index, which tracks existing single-family home price trends in major metropolitan areas.

It was the worst decline in the 20 years since the price barometer was inaugurated, said Robert Shiller, chief economist for MacroMarkets, a division of Standard & Poor’s that calculates the index.

“The pullback in the U.S. residential real estate market is showing no signs of slowing down,” said Shiller, who was among those who forecast the end of the late 1990s stock market boom.

The broad weakness evident in the nation’s housing market is expected to intensify pressures on the U.S. economy.

Still, the accelerated rate of decline in the Case/Shiller report “was not a surprise, given the recent downward trends in existing home sales, rising inventories and tightening credit conditions through the end of the second quarter and in the month of July,” said Brian Bethune, an economist with research firm Global Insight of Lexington, Mass.

Yet the rapid deceleration, he said, serves as a “sobering reminder that the nation’s housing market was already on the ropes even before” world credit markets were thrown into a tailspin this month because of escalating mortgage delinquencies.

In June, 15 of the 20 U.S. markets tracked by the index fell, including declines of 4.1% in the Los Angeles region, 7.3% in San Diego and 4% in San Francisco. Other areas fared significantly worse, particularly Detroit, where prices plunged 11%. Phoenix suffered a 6.6% drop, and home values in Las Vegas were down 5.1% in June versus a year ago.

By comparison, the Pacific Northwest was strong, with prices rising 7.9% in Seattle and 4.5% in Portland.

Other regions posting gains were Charlotte, N.C., at 6.8% and Dallas and Atlanta at 1.6%.

In Southern California, the residential real estate market is skewed somewhat by stronger demand for higher-priced homes.

That’s partly because people shopping for homes in Beverly Hills and Malibu are largely unaffected by tighter loan standards, and the neighborhoods where they purchase homes aren’t sprinkled with lender foreclosures.

That phenomenon helped push up the region’s overall median price to $505,000 in the second quarter, up 4.4% from the year before, even though sales fell 33%, according to DataQuick Information Systems, which compiles statistics based on all closed real estate transactions in a given period.

Let’s stop right there but I encourage everyone to read the full article.

Those last couple of paragraphs in the preceding article explain the big flaw with median prices. That flaw is something the NAR is aware of but instead chooses to exploit: Sales are down 33% but high net worth individuals are willing to buy a house anyway. Prices then become skewed towards increasing median prices even though real prices may be falling like a rock.

While on the subject of skewed data, take a look at new home sales. New home sales are recorded when the agreement to buy is recorded. Cancellations are not subtracted. Homebuilders are reporting 20-40% cancellation rates.

Shiller is an Optimist

Let’s now take a good look at the Shiller index. There are serious flaws in his methodology. For starters Shiller does not look at new home prices. If a homebuilder drops the price on a model from $400,000 to $280,000 that does not show up in the Shiller Index. Nor do incentives. There are other flaws too. I talked about Shiller and HPI (Home Price Index) flaws in Housing prices: Comparing Shiller and HPI.

Lawrence Yun at the NAR is well aware of these issues. He chooses to ignore them just as Lereah did. So is Housing “Strong” in 97 of 149 Markets? You can believe the NAR or you can believe an extremely conservative Shiller. My take is that Shiller is an optimist and home price declines nationally are seriously understated.

Mike Shedlock / Mish/