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posted on 28 July 2015

Case-Shiller Home Price Index May 2015 Shows Home Prices Rising But Pace Still Not Accelerating

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was unchanged from last month's 4.9%. The authors of the index say: "Over the next two years or so, the rate of home price increases is more likely to slow than to accelerate".

  • 20 city unadjusted home price rate of growth accelerated 0.0% month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
  • CoreLogic currently shows the highest year-over-year growth of 6.3%.
  • The market expected:
Consensus Range Consensus Actual
20-city, SA - M/M -0.2 % to 0.6 % 0.3 % -0.2 %
20-city, NSA - Y/Y 5.2 % to 5.8 % 5.6 % +4.9 %

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:

As home prices continue rising, they are sending more upbeat signals than other housing market indicators. Nationally, single family home price increases have settled into a steady 4%-5% annual pace following the double-digit bubbly pattern of 2013. Over the next two years or so, the rate of home price increases is more likely to slow than to accelerate. Prices are increasing about twice as fast as inflation or wages. Moreover, other housing measures are less robust. Housing starts are only at about 1.2 million units annually, and only about half of total starts are single family homes. Sales of new homes are low compared to sales of existing homes.

First time homebuyers are the weak spot in the market. First time buyers provide the demand and liquidity that supports trading up by current home owners. Without a boost in first timers, there is less housing market activity, fewer existing homes being put on the market, and more worry about inventory. Research at the Atlanta Federal Reserve Bank argues that one should not blame millennials for the absence of first time buyers. The age distribution of first time buyers has not changed much since 2000; if anything, the median age has dropped slightly. Other research at the New York Fed points to the size of mortgage down payments as a key factor. The difference between a 5% and 20% down payment, particularly for people who currently rent, has a huge impact on buyers' willingness to buy a home. Mortgage rates are far less important to first time buyers than down payments."

CoreLogic believes low inventories are spurring rising home prices (May Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Anand Nallathambi, president and CEO of CoreLogic:

Mortgage rates on 30-year fixed-rate loans remained below 4 percent through May, helping to fuel home-purchase activity. Our homes-for-sale listing data shows that markets with high demand and limited supply, such as San Francisco, are recording double-digit appreciation rates over the past year.

The rate of home price appreciation ticked up in May with gains being fairly widely distributed across the country. Importantly, higher home prices over the past couple of years have spurred increases in new single-family construction. Sales of newly built homes during the first five months of 2015 were up 23 percent from a year ago, and as rising values build equity for homeowners, we expect to see more existing homes offered for sale in the coming year.

The National Association of Realtors says home sales growth for Spring is much improved (June 2015 data):

Lawrence Yun, NAR chief economist, says backed by June's solid gain in closings, this year's spring buying season has been the strongest since the downturn. "Buyers have come back in force, leading to the strongest past two months in sales since early 2007," he said. "This wave of demand is being fueled by a year-plus of steady job growth and an improving economy that's giving more households the financial wherewithal and incentive to buy."

Adds Yun, "June sales were also likely propelled by the spring's initial phase of rising mortgage rates, which usually prods some prospective buyers to buy now rather than wait until later when borrowing costs could be higher."

"Limited inventory amidst strong demand continues to push home prices higher, leading to declining affordability for prospective buyers," said Yun. "Local officials in recent years have rightly authorized permits for new apartment construction, but more needs to be done for condominiums and single-family homes."

NAR President Chris Polychron says Realtors® are reporting drastic imbalances of supply in relation to demand in many metro areas — especially in the West. "The demand for buying has really heated up this summer, leading to multiple bidders and homes selling at or above asking price. Furthermore, tight inventory conditions are being exacerbated by the fact that some homeowners are hesitant to sell because they're not optimistic they'll have adequate time to find an affordable property to move into."

Black Knight Financial Services (formerly known as Lender Processing Services) May 2015 home price index up 1.1% for the Month; Up 5.1% 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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