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posted on 25 April 2017

Case-Shiller 20 City Home Price Index February 2017 Shows 5.9 % Year-over-Year Growth

Written by Steven Hansen

The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth improved to 5.9 %. The index authors stated "Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates".

Analyst Opinion of Case-Shiller HPI

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.

  • 20 city unadjusted home price rate of growth accelerated 0.2 % 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 % +0.7 %
20-city, NSA - M/M +0.4%
20-city, NSA - Yr/Yr 5.7 % to 5.9 % 5.8 % +5.9 %

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 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).

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:

Housing and home prices continue to advance. The S&P Corelogic Case-Shiller National Home Price Index and the two composite indices accelerated since the national index set a new high four months ago. Other housing indicators are also advancing, but not accelerating the way prices are. As per National Association of Realtors sales of existing homes were up 5.6% in the year ended in March. There are still relatively few existing homes listed for sale and the small 3.8 month supply is supporting the recent price increases. Housing affordability has declined since 2012 as the pressure of higher prices has been a larger factor than stable to lower mortgage rates.

Housing's strength and home building are important contributors to the economic recovery. Housing starts bottomed in March 2009 and, with a few bumps, have advanced over the last eight years. New home construction is now close to a normal pace of about 1.2 million units annually, of which around 800,000 are single family homes. Most housing rebounds following a recession only last for a year or so. The notable exception was the boom that set the stage for the bubble. Housing starts bottomed in 1991, drove through the 2000-2001 recession, and peaked in 2005 after a 14-year run."

CoreLogic believes low inventories are spurring rising home prices (February 2017 Data). Per Dr Frank Nothaft, chief economist for CoreLogic and Frank Martell, president and CEO of CoreLogic stated:

Home prices and rents have risen the most in local markets with high demand and limited supply, such as Seattle, Portland and Denver. The rise in housing costs has been largest for lower-tier-priced homes. For example, from December to February in Seattle, the CoreLogic Home Price Index rose 12 percent and our single-family rent index rose 6 percent for all price tiers compared with the same period a year earlier. However, when looking at only lower-cost homes in Seattle, the price increase was 13 percent and the rent increase was 7 percent.

Home prices continue to grow at a torrid pace so far in 2017 and these gains are likely to continue well into the future. Home prices are at peak levels in many major markets and the appreciation is being driven by a number of dynamics—high demand, stronger employment, lean supplies and affordability—that will continue to play out in the coming years. The CoreLogic Home Price Index is projecting an additional 5 percent rise in home prices nationally over the next 12 months.

The National Association of Realtors says home sales prices continue to increase (March 2017 data):

Lawrence Yun, NAR chief economist, says existing sales roared back in March and were led by hefty gains in the Northeast and Midwest. "The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month," he said. "Although finding available properties to buy continues to be a strenuous task for many buyers, there was enough of a monthly increase in listings in March for sales to muster a strong gain. Sales will go up as long as inventory does."

Added Yun, "Bolstered by strong consumer confidence and underlying demand, home sales are up convincingly from a year ago nationally and in all four major regions despite the fact that buying a home has gotten more expensive over the past year."

"Last month's swift price gains and the remarkably short time a home was on the market are directly the result of the homebuilding industry's struggle to meet the dire need for more new homes," said Yun. "A growing pool of all types of buyers is competing for the lackluster amount of existing homes on the market. Until we see significant and sustained multi-month increases in housing starts, prices will continue to far outpace incomes and put pressure on those trying to buy."

NAR President William E. Brown, says patience is virtue for prospective first-time buyers this spring. "Realtors® in most markets are saying interest from first-timers is up this year, but competition is stiff for listings in their price range," he said. "The best advice is to lean on the guidance of a Realtor® throughout the home search and be careful about stretching the budget too far. Don't get frustrated by losing out

Black Knight Financial Services (formerly known as Lender Processing Services) February 2017 home price index Up 0.8 Percent for the Month; Up 5.7 Percent Year-Over-Year. 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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