In May, the S&P/Case-Shiller home price index exhibited its first monthly increase in nearly three years. In June, new home sales rose 11% -- besting the most optimistic forecasts. Existing home sales also rose during the month of June, for the third month in a row. As Karl Case, professor of economics and the co-creator of the S&P/Case-Shiller index, told Bloomberg radio: "If you're looking for a bottom, there's a lot of good stuff here."

Things do look better
A word of caution: the S&P/Case-Shiller index isn't seasonally adjusted, which makes it more difficult to interpret a month-on-month change in value. Year-on-year, the May figure still shows a substantial decline, but that decline continues to tighten, rather than widen:

Month

May 2009

April 2009

March 2009

Feb. 2009

Jan. 2009

Dec. 2008

Case-Shiller Index Year-on-Year Growth

(17.1%)

(18.1%)

(18.7%)

(18.7%)

(19.0%)

(18.6%)

At the beginning of the month, I wrote about a report that predicted that housing might not bottom until 2011. It's certainly conceivable that forecast was too pessimistic -- the new data appears to support a more optimistic outlook.

"All in" with housing
Investors in sectors with significant exposure to the housing market will surely take some cheer from this data, and it will be none too soon -- despite large stock price moves since the March 9 market low, the price-to-book multiples of the following stocks remain in their lowest decile going back to the beginning of 1995:

 

Primary Sector

Price-to-Book Value per Share

Lowe's (NYSE:LOW)

Consumer Discretionary

1.76

Home Depot (NYSE:HD)

Consumer Discretionary

2.40

Bed Bath & Beyond (NASDAQ:BBBY)

Consumer Discretionary

2.93

Regions Financial (NYSE:RF)

Financials

0.29

Bank of America (NYSE:BAC)

Financials

0.48

Morgan Stanley (NYSE:MS)

Financials

0.93

Wells Fargo (NYSE:WFC)

Financials

1.31

Prepare for a long recovery
While the recent data is encouraging, there is no mathematical law that rules out future declines in home prices; i.e., we could have more than one bottom. In fact, in a piece published yesterday, my Foolish colleague Morgan Housel describes a phenomenon that could ultimately contribute to further price declines. Investors need to remain levelheaded and keep in mind the second half of professor Case's quote: "If you’re looking for a real recovery, it's going to take some time."

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Alex Dumortier, CFA, has a beneficial interest in Wells Fargo, but not in any of the other companies mentioned in this article. Bed Bath & Beyond is a Motley Fool Stock Advisor pick. Bed Bath & Beyond, The Home Depot, and Lowe's Companies are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.