Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for August 2012 (released today) showed the third year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home prices increased 0.9% month-over-month – the third month-over-month increase in a row
- However, home prices increased year-over-year 2.0% (versus 1.2% in July).
- The market had expected a year-over-year increase between 1,5% and 1.7% (versus the 2.0% 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 7 to 10 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 continued climbing across the country in August,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Nineteen of the 20 cities and both Composites showed monthly gains in August. Seventeen cities and both Composites posted positive annual returns in August 2012. In 18 cities and both Composites annual rates improved in August versus July. Dallas’ rate remained unchanged at +3.6% and Chicago worsened slightly from a -1.0% annual rate in July to a -1.6% annual rate in August.
“Phoenix continues to lead the home price recovery. It recorded its fourth consecutive month of double-digit positive annual returns with a +18.8% rate for August. Atlanta posted a -6.1% annual rate, however this is significantly better than the nine consecutive months of double-digit declines it posted from October 2011 through June 2012. Las Vegas’ annual rate finally moved to positive territory with a +0.9% annual rate of change in August 2012, its first since January 2007.
“The sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market.
“News on home prices confirms other good news about housing. Single family housing starts are 43% ahead of last year’s pace, existing and new home sales are also up, the inventory of homes for sale continues to drop and consumer mortgage default rates are reaching new lows. Further consumer confidence continues to rise. Even as we end the seasonally strong home buying period, the statistics are positive. For the fifth time in a row, both Composites had monthly gains. Home prices in Seattle fell modestly in August, but other than that the 20 cities have also seen home prices generally improve since April.”
CoreLogic suggests home prices will continue to recover (August Data):
“Again this month prices rose on a year-over-year basis and our expectation is for that to continue in September based on our pending HPI forecast,” said Mark Fleming, chief economist for CoreLogic. “The housing markets gains are increasingly geographically diverse with only six states continuing to show declining prices.”
“Sustained economic recovery in the U.S. requires a healthy housing market. You cannot have a healthy housing market without price stabilization and ultimately home price appreciation,” said Anand Nallathambi, president and CEO of CoreLogic. “Improving pricing trends over the past few months and our forecast for continued gains in September bode well for a progressive rebound in the residential housing market.”
Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.9 percent in August 2012 compared to August 2011. On a month-over-month basis excluding distressed sales, home prices increased 1 percent in August 2012 compared to July 2012, also the sixth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.
The CoreLogic Pending HPI indicates that September 2012 home prices, including distressed sales, are expected to rise by 5 percent on a year-over-year basis from September 2011 and fall by 0.3 percent on a month-over-month basis from August 2012 as the summer buying season closes out. Excluding distressed sales, September 2012 house prices are poised to rise 6.3 percent year-over-year from September 2011 and by 0.6 percent month-over-month from August 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 the shrinking inventory of homes for sale are one on the major drivers for price increases (September 2012 data):
Lawrence Yun , NAR chief economist, said the market trend is up. “Despite occasional month-to-month setbacks, we’re experiencing a genuine recovery,” he said. “More people are attempting to buy homes than are able to qualify for mortgages, and recent price increases are not deterring buyer interest. Rather, inventory shortages are limiting sales, notably in parts of the West.”
“The shrinkage in housing supply is supporting ongoing price growth, a pattern that could accelerate unless home builders robustly ramp up production,” Yun said.
Lender Processing Services (LPS) August 2012 home price index rose 0.2% month-over-month and 2.6% 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 – 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)
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