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posted on 29 November 2016

Case-Shiller Home Price Index September 2016 Is At New High

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 at 5.1%. The index authors stated "U.S. National Home Price NSA Index, covering all nine U.S. census divisions, surpassed the peak set in July 2006 as the housing boom topped out."

Analyst Opinion of Case-Shiller HPI

Although over the past few years there has been a moderate slowing of the Case Shiller HPI year-over-year growth - this month saw a marginal improvement. Many pundits believe home prices are back in a bubble. Maybe, but the falling inventory of homes for sale keeps home prices relatively high. I continue to see this a situation of supply and demand. It is the affordability of the homes which is becoming an issue for the lower segments of consumers. It is my belief that IF the Fed begins to normalize the federal funds rate - it will slow the growth rate of home prices. But for now, the merry ride continues.

  • 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 -0.1 % to 0.5 % 0.4 % +0.4 %
20-city, NSA - M/M 0.4 % to 0.7 % 0.6 % +0.1 %
20-city, NSA - Yr/Yr 4.7 % to 5.3 % 5.2 % +5.1 %

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.

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 stabilize (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 new peak set by the S&P Case-Shiller CoreLogic National Index will be seen as marking a shift from the housing recovery to the hoped-for start of a new advance. While seven of the 20 cities previously reached new post-recession peaks, those that experienced the biggest booms -- Miami, Tampa, Phoenix and Las Vegas -- remain well below their all-time highs. Other housing indicators are also giving positive signals: sales of existing and new homes are rising and housin g starts at an annual rate of 1.3 million units are at a post-recession peak.

The table summarizes how housing, incomes and the stock market have moved over the past few decades. From 1975 (the earliest date for the S&P Case-Shiller CoreLogic National Index) to this report, home prices rose at an annual rate of 4.9% before adjusting for inflation. The real or inflation adjusted pace was 1.1% per year. Real disposable personal income per capita - income after inflation and taxes on a per-person basis -- rose 1.9%, outpacing home prices over the entire period. The stock market, measured by the S&P 500 adjusted for inflation, did better at 4.4% per year. As seen in the table, the time frame makes a big difference. We are currently experiencing the best real estate returns since the bottom in July of 2012 when prices rose at a 5.9% real annual rate. Given history, this trend is unlikely to be sustained."

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

Home-equity wealth has doubled during the last five years to $13 trillion, largely because of the recovery in home prices. Nationwide during the past year, the average gain in housing wealth was about $11,000 per homeowner, but with wide geographic variation.

Home-price growth creates wealth for owners with home equity. A 5 percent rise in home values over the next year would create another $1 trillion in home-equity wealth for homeowners.

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

Lawrence Yun, NAR chief economist, says the wave of sales activity the last two months represents a convincing autumn revival for the housing market. "October's strong sales gain was widespread throughout the country and can be attributed to the release of the unrealized pent-up demand that held back many would-be buyers over the summer because of tight supply," he said. "Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes."

Added Yun, "The good news is that the tightening labor market is beginning to push up wages and the economy has lately shown signs of greater expansion. These two factors and low mortgage rates have kept buyer interest at an elevated level so far this fall."

"The ramp-up in housing starts in October is a hopeful sign that overall supplycan steadily increase enough to provide more choices for buyers and also moderate price growth," said Yun. "A prolonged continuation of the robust single-family starts pace seen last month (869,000) would go a long way in giving homeowners much-needed assurance that they can list their home for sale and find a new home to buy within a reasonable timeframe.

"As a result of the anticipated economic stimulus in early 2017, mortgage rates post-election have now surged to around 4 percent as investors expect a strengthening economy and higher inflation," said Yun. "In the short-term, some prospective buyers may rush to lock in their rate and buy now, while others — especially those in higher-priced markets — may be forced to delay as a larger monthly payment outstretches their budget."

Black Knight Financial Services (formerly known as Lender Processing Services) July 2016 home price index Up 0.1 Percent for the Month; Up 5.4 Percent Year-Over-Year (unchanged from last month). Note that Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

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.

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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