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posted on 29 September 2015

Case-Shiller Home Price Index July 2015 Shows Stable Home Prices

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was 5.0% (again statistically unchanged from last month). The authors of the index say: "An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance".

  • 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 6.9 %.
  • The market expected:
Consensus Range Consensus Actual
20-city, SA - M/M -0.2 % to 0.6 % 0.1 % -0.2 %
20-city, NSA - M/M 0.6 % to 1.5 % 0.9 % 0.6 %
20-city, NSA - Y/Y 4.5 % to 6.0 % 5.3 % +5.0 %

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:

Prices of existing homes and housing overall are seeing strong growth and contributing to recent solid growth for the economy. The S&P/Case Shiller National Home Price Index has risen at a 4% or higher annual rate since September 2012, well ahead of inflation. Most of the strength is focused on states west of the Mississippi. The three cities with the largest cumulative price increases since January 2000 are all in California: Los Angeles (138%), San Francisco (116%) and San Diego (115%). The two smallest gains since January 2000 are Detroit (3%) and Cleveland (10%). The Sunbelt cities - Miami, Tampa, Phoenix and Las Vegas - which were the poster children of the housing boom have yet to make new all-time highs

"The economy grew at a 3.9% real annual rate in the second quarter of 2015 with housing making a major contribution. Residential investment grew at annual real rates of 9-10% in the last three quarters (2014:4th quarter, 2015:1st-2 nd quarters), far faster than total GDP. Further, expenditures on furniture and household equipment, a sector that depends on home sales and housing construction, also surpassed total GDP growth rates. Other positive indicators of current and expected future housing activity include gains in sales of new and existing housing and the National Association of Home Builders sentiment index. An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance.

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

Home sales continued their brisk rebound in July and home prices reflected that, up 6.9 percent from a year ago. Over the same period, the National Association of Realtors reported existing sales up 10 percent and the Census Bureau reported new home sales up 26 percent in July.

Low mortgage rates and stronger consumer confidence are supporting a resurgence in home sales of late. Adding to overall housing demand is the benefit of a better labor market which has provided millennials the financial independence to form new households and escape ever rising rental costs.

The National Association of Realtors says home sales growth is improved (August 2015 data):

Lawrence Yun, NAR chief economist, says home sales in August lost some momentum to close out the summer. "Sales activity was down in many parts of the country last month — especially in the South and West — as the persistent summer theme of tight inventory levels likely deterred some buyers," he said. "The good news for the housing market is that price appreciation the last two months has started to moderate from the unhealthier rate of growth seen earlier this year."

"With sales and overall demand higher than a year ago and supply mostly unchanged, low inventories will likely continue to limit options for those looking to buy this fall even with the overall pool of buyers shrinking because of seasonal factors," adds Yun.

"When the Federal Reserve decides to lift short-term rates — likely later this year — the impact on mortgage rates and overall housing demand will likely not be pronounced," says Yun. "With job growth holding steady, prospective buyers can handle any gradual rise in mortgage rates — especially if today's stronger labor market finally leads to a boost in wages and homebuilding accelerates to alleviate supply shortages and slow price growth in some markets."

NAR President Chris Polychron says Realtors® worked hard over the summer to prepare for the Oct. 3 implementation of Know Before You Owe, also known as the TILA-RESPA Integrated Disclosure rule. "A large majority of Realtors® have taken some form of training5 to prepare for the new disclosure requirements," he said. "As the ruling goes into effect next month, communication is crucial between all parties involved in a real estate transaction to ensure consumers get to closing seamlessly and without delay. NAR will monitor the progress of the rule in the weeks ahead and will share any concerns that arise as part of our continued partnership with the Consumer Financial Protection Bureau."

Black Knight Financial Services (formerly known as Lender Processing Services) July 2015 home price index up 0.4% for the Month; Up 5.3% 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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