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posted on 31 March 2015

Case-Shiller Home Price Index January 2015 Shows Home Prices Continue to Improve

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) for January 2015 (released today) year-over-year rate of home price growth improved from 4.4% (reported as 4.5% last month) to 4.6%. Despite this gain, the authors of this index say there are difficulties: "Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession.".

  • 20 city unadjusted home price rate of growth accelerated 0.1% 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 0.5 % to 1.1 % 0.7 % +0.9%
20-city, NSA - M/M 0.0 % to 0.4 % 0.1 % +0.0%
20-city, NSA - Yr/Yr 4.2 % to 5.0 % 4.6 % +4.6%

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)

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)

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:

The combination of low interest rates and strong consumer confidence based on solid job growth, cheap oil and low inflation continue to support further increases in home prices. Regional patterns in recent months continue: strength in the west and southwest paced by Denver and Dallas with results ahead of the national index in the California cities, the Pacific Northwest and Las Vegas. The northeast and Midwest are mostly weaker than the national index.

Despite price gains, the housing market faces some difficulties. Home prices are rising roughly twice as fast as wages, putting pressure on potential homebuyers and heightening the risk that any uptick in interest rates could be a major setback. Moreover, the new home sector is weak; residential construction is still below its pre-crisis peak. Any time before 2008 that housing starts were as low as the current rate of one million, the economy was in a recession.

CoreLogic believes home price growth has moderated (January Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Anand Nallathambi, president and CEO of CoreLogic:

House price appreciation has generally been stronger in the western half of the nation and weakest in the mid-Atlantic and northeast states," said Dr. Frank Nothaft, chief economist at CoreLogic. "In part, these trends reflect the strength of regional economies. Colorado and Texas have had stronger job creation and have seen 8 to 9 percent price gains over the past 12 months in our combined indexes. In contrast, values were flat or down in Connecticut, Delaware and Maryland in our overall index, including distressed sales.

We continue to see a strong and progressive uptick in home prices as we enter 2015. We project home prices will continue to rise throughout the year and into 2016. A dearth of supply in many parts of the country is a big factor driving up prices. Many homeowners have taken advantage of low rates to refinance their homes, and until we see sustained increases in income levels and employment they could be hunkered down so supplies may remain tight. Demand has picked up as low mortgage rates and the cut in the FHA annual insurance premium reduce monthly payments for prospective homebuyers.

The National Association of Realtors says home sales growth had a bad month (February 2015 data):

Lawrence Yun, NAR chief economist, says although February sales showed modest improvement, there's been some stagnation in the market in recent months. "Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels," he said. "Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise."

Adds Yun, "Severe below-freezing winter weather likely had an impact on sales as more moderate activity was observed in the Northeast and Midwest compared to other regions of the country."

"With all indications pointing to a rate increase from the Federal Reserve this year - perhaps as early as this summer - affordability concerns could heighten as home prices and rents both continue to exceed wages," adds Yun.

"Investor sales are trending downward due to the continued rise in prices and fewer bargains available from distressed properties coming onto the market," says NAR President Chris Polychron. "Furthermore, Realtors® in areas popular to foreign buyers, such as South Florida and the West Coast, are reporting tempered demand from international clients - who typically pay in cash - due to the strengthening U.S. dollar compared to foreign currencies."

Black Knight Financial Services (formerly known as Lender Processing Services) January 2015 home price index down 0.1% for the Month; Up 4.6% 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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