Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for July 2012 (released today) showed the second year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home prices increased 1.6% month-over-month – the third month-over-month increase in a row
- However, home prices increased year-over-year 1.2% (versus 0.5% in June).
- The market had expected a year-over-year increase between 0.8% and 1.5% (versus the 1.2% reported)
Case-Shiller home price index was the last index showing year-over-year home price decline – and and is now positive for the second month. 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 are some differences between the indices on the rate of “recovery” of home prices. However, the trend for the last 6 to 9 months have been an improving home market
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 in the housing market.
“Home prices increased again in July,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “All 20 cities and both Composites were up on the month for the third time in a row. Even better, 16 of the 20 cities and both Composites rose over the last year. Atlanta remains the weakest city but managed to cut the annual loss to just under 10%.
“Digging into the numbers, 15 cities and both Composites had stronger annual returns in July’s report. New York was the only city with a worse 12-month decline in July than June. Dallas and Washington D.C. saw no change in their annual rates. Cleveland and Detroit saw annual rates decelerate in July versus June, although they remain positive for both cities.
“The news on home prices in this report confirm recent good news about housing. Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing. All in all, we are more optimistic about housing. Upbeat trends continue. For the third time in a row, all 20 cities and both Composites had monthly gains. Stronger housing numbers are a positive factor for other measures including consumer confidence.
“Among the cities, Miami and Phoenix are both well off their bottoms with positive monthly gains since the end of 2011. Many of the markets we follow have seen some decent recovery from their respective lows – San Francisco up 20.4%, Detroit up 19.7%, Phoenix up 17.0% and Minneapolis up 16.5%, to name the top few.
These were some of the markets that were hit the hardest when the housing bubble burst in 2006. The 10-City has increased 7.4% and the 20-City 7.8% since their recent lows. The positive news in both the monthly and annual rates of change in home prices over the past few months signals a possible recovery in the housing market.”
CoreLogic suggests home prices have turned the corner and now recovering (July Data):
“The housing market continues its positive trajectory with significant price gains in July and our expectation of a further increase in August,” said Mark Fleming, chief economist for CoreLogic. “While the pace of growth is moderating as we transition to the off-season for home buying, we expect a positive gain in price levels for the full year.”
“It’s been six years since the housing market last experienced the gains that we saw in July, with indications the summer will finish up on a strong note,” said Anand Nallathambi, president and CEO of CoreLogic. “Although we expect some slowing in price gains over the balance of 2012, we are clearly seeing the light at the end of a very long tunnel.”
Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.3 percent in July 2012 compared to July 2011. On a month-over-month basis excluding distressed sales, home prices increased 1.7 percent in July 2012 compared to June 2012, also the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.
The CoreLogic Pending HPI indicates that August home prices, including distressed sales, will rise by 4.6 percent on a year-over-year basis from August 2011 and at least 0.6 percent on a month-over-month basis from July 2012. Excluding distressed sales, August house prices are also poised to rise 6.0 percent year-over-year from August 2011 and by 1.3 percent month-over-month from July 2012. The CoreLogic Pending HPI is a proprietary and exclusive metric that provides the most current indication of trends in home prices. It is based on Multiple Listing Service (MLS) data that measure price changes in the most recent month.
The National Association of Realtors believes tight lending standards are constraining the market (August 2012 data):
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) June 2012 home price index rose 0.7% month-over-month and 0.9% year-over-year.
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