Case-Shiller Home Price Index October 2014: Price Growth Continues to Slow

December 30th, 2014
in aa syndication, home sales and home prices

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The non-seasonally adjusted Case-Shiller home price index (20 cities) for October 2014 (released today) year-over-year rate of home price growth slowed from 4.8% (reported as 4.9% last month) to 4.5%.

Follow up:

 

  • 20 city unadjusted home price rate of growth decelerated 0.3% month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
  • Case-Shiller no longer shows the highest year-over-year home price gains of any home price index - this "honor" goes to CoreLogic.
  • The market expected:
  Consensus Range Consensus Actual
20-city, SA - M/M 0.4 % to 1.1 %  0.6 % +0.8% 
20-city, NSA - M/M -0.3 % to 0.2 % -0.2 % -0.1% 
20-city, NSA - Yr/Yr 4.3 % to 5.0 % 4.5 % 4.5% 

S&P/Case-Shiller Home Price Indices Year-over-Year Change

Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index  - and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of more higher value homes.

Comparison of Home Price Indices – Case-Shiller 3 Month Average (blue line, left axis), CoreLogic (green line, left axis) and National Association of Realtors 3 Month Average (red line, right axis)

/images/z existing3.PNG

The way to understand the dynamics of home prices is to watch the direction of the rate of change. Here home price growth generally appears to be stabilizing (rate of growth not rising or falling).

Year-over-Year Price Change Home Price Indices – Case-Shiller 3 Month Average (blue bar), CoreLogic (yellow bar) and National Association of Realtors 3 Month Average (red bar)

/images/z existing5.PNG

There are some differences between the indices on the rate of “recovery” of home prices. 

A synopsis of Authors of the Leading Indices:

Case Shiller’s David M. Blitzer, Chairman of the Index Committee at S&P Indices:

After a long period when home prices rose, but at a slower pace with each passing month, we are seeing hints that prices could end 2014 on a strong note and accelerate into 2015. Two months ago, all 20 cities were experiencing weakening annual price increases., Last month, 18 experienced weakness. This time, 12 cities had weaker annual price growth, but eight saw the pace of price gains pick up. Seasonally adjusted, all 20 cities had higher prices than a month ago.

Most national economic statistics, other than those connected to housing, posted positive reports in November and early December. Third quarter GDP was revised to 5% real growth at annual rates, and unemployment was at 5.8% as payrolls added over 300,000 jobs in November. Housing was somber: housing starts pulled back 1.6%, existing home sales were at 4.93 million, down 6.1%, and new home sales were 438,000, down 1.6%, all in November.

CoreLogic believes home price growth is mixed (October Data). Per Sam Khater, deputy chief economist at CoreLogic and Anand Nallathambi, president and CEO of CoreLogic:

Home price growth is moderating as we head into the late fall and is currently running at half the pace it was in the spring of 2014. However, there are still pockets of strength, especially in several Texas markets, as well as Seattle, Denver and other markets with strong economic fundamentals.

The gradual recovery of the housing market continues to be propelled by improving employment, more buyer and seller confidence, continued low rates and, in certain parts of the country, investor demand. The continued actual and projected rise in home prices confirms that fact. Based on our projections, home prices in over half the country will have reached or surpassed levels last seen at the height of the housing bubble sometime in mid-2015.

The National Association of Realtors says home sales growth is improving (November 2014 data):

Lawrence Yun, NAR chief economist, says sales activity was choppy throughout the country in November and housing inventory began its seasonal decline. “Fewer people bought homes last month despite interest rates being at their lowest levels of the year,” he said. “The stock market swings in October may have impacted some consumers’ psyche and therefore led to fewer November closings. Furthermore, rising home values are causing more investors to retreat from the market.”

“Lagging homebuilding activity continues to hamstring overall housing supply and is still too low in relation to this year’s promising job growth,” says Yun. “Much faster price and rent appreciation – easily exceeding wage growth – will occur next year unless new construction picks up measurably.”

NAR President Chris Polychron says Fannie Mae and Freddie Mac’s new low downpayment program should improve access to credit for responsible buyers. “NAR applauds Fannie and Freddie’s commitment to homeownership by serving creditworthy borrowers who lack the resources for substantial downpayments plus closing costs with its new downpayment program,” he said. “The new program mitigates risk with strong underwriting and ensures that responsible buyers have access to safe and affordable mortgage credit. Furthermore, NAR believes lenders must do their part to ensure loans are prudently underwritten and are made available to qualified borrowers.”

Black Knight Financial Services (formerly known as Lender Processing Services) October 2014 home price index up 0.1% for the Month; Up 4.5% Year-over-Year.

Econintersect publishes knowledgeable views of the housing market.

Caveats on the Use of Home Price Indices

The housing price decline seen since 2005 varies by zip code – and seems to have ended somewhere around the beginning of the 2Q2012. Every area of the country has differing characteristics. Since January 2006, the housing declines in Charlotte and Denver are well less than 10%, while Las Vegas home prices had declined almost 60%.

Each home price index uses a different methodology – and this creates slightly different answers. There is some evidence in various home price indices that home prices are beginning to stabilize – the evidence is also in this post. Please see the post Economic Headwinds from Real Estate Moderate.

The most broadly based index is the US Federal Housing Finance Agency’s House Price Index (HPI) – a quarterly broad measure of the movement of single-family house prices. This index is a weighted, repeat-sales index on the same properties in 363 metro centers, compared to the 20 cities Case-Shiller.

The US Federal Housing Finance Agency also has an index (HPIPONM226S) based on 6,000,000 same home sales – a much broader index than Case-Shiller. Also, there is a big difference between home prices and owner’s equity (OEHRENWBSHNO) which has been included on the graph below.

Comparing Various Home Price Indices to Owner’s Equity (blue line)

With rents increasing and home prices declining – the affordability factor favoring rental vs owning is reversing. Rising rents are shifting the balance.

Price to Rent Ratio – Indexed on January 2000 – Based on Case-Shiller 20 cities index ratio to CPI Rent Index

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