The S&P/Case-Shiller home price index came Tuesday morning with a chilling warning from the chairman of the Index Committee at S&P Dow Jones Indices.

“The housing recovery is faltering. While prices and sales of existing homes are close to normal, construction and new home sales remain weak. Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession,” said David Blitzer, managing director and chairman.

There’s no doubt that the year is off to a bad start for housing in terms of housing starts, completions and permits. Existing home sales tumbled in January, and mortgage applications have been spiraling downward in February, giving away most of the gains made in January. The earliest home price report from Black Knight Financial Services pointed to home price declines in December.

The National index was slightly negative in December, while both composite Indices were positive. Both the 10- and 20-City Composites reported slight increases of 0.1%, while the National Index posted a -0.1% change for the month. Miami and Denver led all cities in December with increases of 0.7% and 0.5% respectively. Chicago and Cleveland offset those gains by reporting decreases of -0.9% and -0.5% respectively.

“The softness in housing is despite favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates and positive consumer confidence,” Blitzer said.

Industry reaction from some quarters was contrary and swift.

“The Case-Shiller price index metrics for December all came in at the high range of what analysts were expecting, meaning that price appreciation in the last quarter of 2014 was stronger than expected by Wall Street,” said Jonathan Smoke, chief economist for realtor.com.  “For most of 2014, we saw home price appreciation moderate as inventory slowly increased and we shifted from away from a higher percentage of investor purchases.

Smoke notes that list prices and existing home prices both saw higher year over year appreciation at the end of 2014 and starting 2015 as a direct consequence of inventory tightening.  

“While inventory was at its peak last summer, the months’ supply of homes on the market only reached 5.6, and now we’re back under 5 months of supply.  We will have price appreciation well above the rate of inflation as long as we stay at such low levels of supply,” he said. “Based on the list and sale prices in January, the very lagged Case-Shiller indices should show even higher appreciation in their release next month.”

Because of all this, he said, he thinks the alarm from Blitzer is overblown.

“This lagged reading should not be interpreted as a signal that the ‘housing recovery is faltering,’” Smoke said. “We’ve had a slow recovery for many reasons, including a depressed level of first-time buyers limited by tight credit and a weak economy.  Now that the economy has strengthened, we’ve exchanged poor fundamentals as a primary inhibitor with limited inventory as the new problem.  Rising prices should encourage would-be sellers and home builders to put more supply on the market and thus enable more growth in sales.

“To falter, we’d have to be falling from a position of strength.  I’d argue we’re just getting started.  We’ve yet to reach a normal level of demand, but the drivers of demand all point to more momentum ahead, not less.  Transaction volume growth depends on demand and supply and these positive price signals are critical to seeing that supply increase,” Smoke said.

Quicken Loans vice president Bill Banfield didn’t see it as alarming. He thinks the problem is inventory more than anything.

“Home prices have entered what appears to be a steady level of appreciation that is not too hot or too cold.,” Banfield said. “But the limited supply of homes on the market to choose from may make some buyers feel like they were left out in the cold.”

Paul Diggle, property economist at Capital Economics, saw more a glass half full.

“December marked the fourth consecutive month during which house prices rose by at least 0.5% m/m,” he said. “The slight acceleration in price growth at the end of last year reflects the tightening in housing market supply conditions. But with housing no longer obviously undervalued, prices are unlikely to increase by much more than incomes over the next few years.

House prices have firmed up in recent months thanks to a combination of fewer homes being put on the market and stronger demand for the inventory that’s available,” Diggle said.

“But as firmer prices act to attract sellers back into the market and keep a lid on demand, that should in turn help prevent a further acceleration in price growth. Admittedly, our forecast of 4% house price growth in both 2015 and 2016 is stronger than the consensus expectation of 3.5%. But with the prospects for the wider US economy looking increasingly promising, that is a position that we are happy to occupy," he said.