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posted on 29 March 2016

Case-Shiller Home Price Index January 2016 Unchanged

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 5.7%. The authors of the index say "While rising home prices are certainly a factor deterring home purchases, individual financial positions are more important than local housing market conditions"

  • 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]
  • Note that Case-Shiller index is an average of the last three months of data.
  • The market expected:
Consensus Range Consensus Actual
20-city, SA - M/M 0.6 % to 1.0 % 0.7 % +0.8 %
20-city, NSA - M/M +0.0 %
20-city, NSA - Yr/Yr 5.7 % to 6.3 % 5.8 % +5.7 %

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:

Home prices continue to climb at more than twice the rate of inflation. The low inventory of homes for sale -- currently about a five month supply - means that would-be sellers seeking to trade-up are having a hard time finding a new, larger home. The recovery of the sale and construction of new homes has lagged the gains seen in existing home sales. This may be starting to change: starts of single family homes in February were the highest since November 2007. The single-family-home share of total housing starts was 70% in February, up from a low of 57% in June 2015, and approaching the 75%-80% range seen before the housing crisis.

While low inventories and short supply are boosting prices, financing continues to be a concern for some potential purchasers, particularly young adults and first time home buyers. The issue is availability of credit for people with substantial student or credit card debt. While rising home prices are certainly a factor deterring home purchases, individual financial positions are more important than local housing market conditions. One hopeful sign is that the home ownership rate, at 63.7% in the 2015 fourth quarter, may be turning around. It is up slightly from 63.5% in the 2015 second quarter but far below the 2004 high of 69.1%.

CoreLogic believes low inventories are spurring rising home prices (January 2016 Data). Per Dr Frank Nothaft, chief economist for CoreLogic and Anand Nallathambi, president and CEO of CoreLogic stated:

While the national market continues to steadily improve, the contours of the home price recovery are shifting. The northwest and Rocky Mountain states have experienced greater appreciation and account for four of the top five states for home price growth.

Heading into the spring buying season, home prices continue to rise across much of the country. With rates staying low for now and continued solid job and income growth, the spring buying season is shaping up to be a good one.

The National Association of Realtors says home sales prices have moderated (February 2016 data): [note that the NAR will release its January 2016 data later today].

Lawrence Yun, NAR chief economist, says existing sales disappointed in February and failed to keep pace with what had been a strong start to the year. "Sales took a considerable step back in most of the country last month, and especially in the Northeast and Midwest," he said. "The lull in contract signings in January from the large East Coast blizzard, along with the slump in the stock market, may have played a role in February's lack of closings. However, the main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers."

According to Yun, job growth continues to hum along at a robust pace, but there appears to be some uneasiness among households that the economy is losing some steam. This was evident in NAR's latest quarterly HOME survey - released earlier this month - which revealed that fewer respondents believe the economy is improving, and a smaller share of renters said that now is a good time to buy a home.

"The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers," says Yun.

"Investor sales have trended surprisingly higher in recent months after falling to as low as 12 percent of sales in August 2015," adds Yun. "Now that there are fewer distressed homes available, it appears there's been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers."

NAR President Tom Salomone says many Realtors® are saying instances of multiple bids and affordable homes going under contract quickly are common in their markets. "With low supply this spring buying season, it's easy for buyers to get discouraged when their offer is rejected in favor of a higher bid," he said. "That's why it's important for buyers to stay patient and work with a Realtor® to develop a negotiation strategy that ensures success without overstretching their budget."

Black Knight Financial Services (formerly known as Lender Processing Services) November 2015 home price index Up 0.1 Percent for the Month; Up 5.5 Percent Year-Over-Year (unchanged from the previous month).

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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