Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for June 2012 (released today) showed the first year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home prices increased 2.3% month-over-month
- However, home prices increased year-over-year 0.5% (versus -0.7% in May).
- The market had expected a year-over-year decline of 0.3% (versus the +0.5% reported)
Case-Shiller home price index was the last index showing year-over-year home price decline – and finally it too is positive. The National Association of Realtors and CoreLogic have reported year-over-year home price gains for several months. Note the caveats section at the end of this post.
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 (red line, right axis)
The way to understand the dynamics of home prices is to watch the direction of the rate of change – and not necessarily whether the prices are getting better or worse. Here almost universally – home prices are either improving or becoming less bad – with the National Association of Realtors home prices currently showing the largest price gains.
Year-over-Year Price Change Home Price Indices – Case-Shiller 3 Month Average (blue bar), CoreLogic (yellow bar) and National Association of Realtors (red bar)
There is significant differences between the indices on the rate of “recovery” of home prices. The real question is whether this is a seasonal effect, or is the home price decline ending.
A synopsis of Authors of the Leading Indices:
Case Shiller’s David M. Blitzer, Chairman of the Index Committee at S&P Indices, sees broad gains.
“Home prices gained in the second quarter,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “In this month’s report all three composites and all 20 cities improved both in June and through the entire second quarter of 2012. All 20 cities and both monthly Composites rose for the second consecutive month. It would have been a third consecutive month had we not seen home prices fall in Detroit back in April.
“The National Composite rose by 6.9% in the second quarter alone, and is up 1.2% from the same quarter of 2011. The 10- and 20-City Composites closely mimic these results; the 10-City was up 5.8% over the quarter and the 20-City was up 6.0%. The two Composites also entered positive territory on an annual basis, up 0.1% and 0.5%, respectively.
“Only two cities – Charlotte and Dallas – saw annual rates of change worsen in June. The other 18 cities and both composites saw improvement in this statistic, and 13 of these had a positive trend. There were only six cities – Atlanta, Chicago, Las Vegas, Los Angeles, New York and San Diego – where the annual rates of change were still negative. Boston’s annual rate was flat. We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change. The market may have finally turned around.
“The regions showed positive results for June. All 20 of the cities saw average home prices rise in June over May and all were by at least 1.0%. Detroit was up the most, +6.0%, and Charlotte the least, +1.0%. The Composites showed the same increases as last month – the 10-City rose by 2.2% in June and the 20-City by 2.3%. We are aware that we are in the middle of a seasonal buying period, but the combined positive news coming from both monthly and annual rates of change in home prices bode well for the housing market.”
CoreLogic suggests home prices have turned the corner and now recovering (June Data):
“Home prices are responding positively to reductions in both visible and shadow inventory over the past year,” said Mark Fleming, chief economist for CoreLogic. “This trend is a bright spot because the decline in shadow inventory translates to fewer distressed sales, which helps sustain price appreciation.”
“At the halfway point, 2012 is increasingly looking like the year that the residential housing market may have turned the corner,” said Anand Nallathambi, president and CEO of CoreLogic. “While first-half gains have given way to second-half declines over the past three years, we see encouraging signs that modest price gains are supportable across the country in the second-half of 2012.”
Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 2.7 percent in May 2012 compared to May 2011. On a month-over-month basis excluding distressed sales, the CoreLogic HPI indicates home prices increased 2.3 percent in May 2012 compared to April 2012, the fourth month-over-month increase in a row. Distressed sales include short sales and real estate owned (REO) transactions.
Lawrence Yun, NAR chief economist commenting on July 2012 data said the market is constrained by not having enough houses to sell:
Lawrence Yun, NAR chief economist, said housing affordability conditions are very good. “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates. Combined, these factors are helping to unleash a pent-up demand,” he said. “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”
NAR is asking the government to expeditiously release the foreclosed properties it owns in inventory-constrained markets. Given population and demographic demand, Yun said existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal. “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said pricing is the primary factor in determining how long homes stay on the market. “Correctly priced homes, regardless of price range, are selling quickly these days,” he said. Fully one-third of homes purchased in July were on the market for less than a month, and only 21 percent were on the market for six months or longer.
Lender Processing Services (LPS) May 2012 home price index rose 0.9% month-over-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. 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 have 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)
Recent review of the Fed 2011 stress tests for banks has a new recession scenario that would see home prices decline another 20% from here. It is unlikely that the attempts to complete a bottom here could hold under those conditions.
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