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posted on 28 June 2016

Case-Shiller Home Price Index April 2016 Rate of Growth Marginally Accelerates

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was improved from 5.3% to 5.4%. However, the index authors stated "the details in the S&P/Case-Shiller Home Price data also hint at possible softness".

  • 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]
  • 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 0.4 % to 0.9 % 0.6 % +0.5 %
20-city, NSA - M/M +1.1 %
20-city, NSA - Yr/Yr 5.3 % to 5.8 % 5.5 % +5.4 %

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 housing sector continues to turn in a strong price performance with the S&P/Case-Shiller National Index rising at a 5% or greater annual rate for six consecutive months. The home price increases reflect the low unemployment rate, low mortgage interest rates, and consumers' generally positive outlook. One result is that an increasing number of cities have surpassed the high prices seen before the Great Recession. Currently, seven cities - Denver, Dallas, Portland OR, San Francisco, Seattle, Charlotte, and Boston - are setting new highs

However, the outlook is not without a lot of uncertainty and some risk. Last week's vote by Great Britain to leave the European Union is the most recent political concern while the U.S. elections in the fall raise uncertainty and will distract home buyers and investors in the coming months. The details in the S&P/Case-Shiller Home Price data also hint at possible softness. Seasonally adjusted figures in the report show that three cities saw lower prices in April compared to only one city in March. Among the 20 cities, 16 saw either declines or smaller increases in monthly prices in the seasonally adjusted numbers.

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

Low mortgage rates and a lean for-sale inventory have resulted in solid home-price growth in most markets. An expected gradual rise in interest rates and more homes offered for sale are expected to moderate appreciation in the coming year.

The appreciation in home prices over the past year reflects the gathering pace of the recovery in housing in most states and regions in the U.S.. The rate recovery does vary somewhat based on local conditions. Price increases in a significant number of states in the Northeast and Mid-Atlantic regions lagged the national average with Connecticut, Maryland, Pennsylvania, West Virginia, New Jersey and Vermont registering gains of 1 percent or less over the past year.

The National Association of Realtors says home sales prices continue to increase (April 2016 data):

Lawrence Yun, NAR chief economist, says existing sales continue to hum along, rising in May for the third consecutive month. "This spring's sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize," he said. "With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now."

Adds Yun, "Barring further deceleration in job growth that could ultimately temper demand from these repeat buyers, sales have the potential to mostly maintain their current pace through the summer."

."Existing inventory remains subdued throughout much of the country and continues to lag even last year's deficient amount," adds Yun. "While new home construction has thankfully crept higher so far this year, there's still a glaring need for even more, to help alleviate the supply pressures that are severely limiting choices and pushing prices out of reach for plenty of prospective first-time buyers."

"At a time of historically low interest rates, responsible student loan borrowers should have the opportunity to refinance their loans from their current rates, which can oftentimes run over double-digit percentage points," said NAR President Tom Salomone. "In addition to policy proposals that streamline income-based repayment programs and allow student loan borrowers the ability to refinance into lower rates, NAR supports those that promote student loan simplification, clarity and education. Furthermore, it's important that mortgage underwriting guidelines related to student loan debt are standardized and do not impair homeownership opportunities."

Black Knight Financial Services (formerly known as Lender Processing Services) April 2016 home price index Up 1.0 Percent for the Month; Up 5.4 Percent Year-Over-Year (5.3% last 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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