Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for November 2012 (released today) showed the sixth year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Non-seasonally adjusted home prices fell 0.1% month-to-month – which is much better than normal between October to November.
- Home prices increased year-over-year 5.5% (versus 4.3% in October).
- The market had expected a year-over-year increase between 5.0% and 5.2% (versus the 5.5% reported)
Case-Shiller home price index has shown year-over-year price improvement for the last six months. The National Association of Realtors and CoreLogic have reported year-over-year home price gains since April 2012. 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 8 to 12 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.
“The November monthly figures were stronger than October, with 10 cities seeing rising prices versus seven the month before.” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Phoenix and San Francisco were both up 1.4% in November followed by Minneapolis up 1.0%. On the down side, Chicago was again amongst the weakest with a drop of 1.3% for November.
“Winter is usually a weak period for housing which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer. The better annual price changes also point to seasonal weakness rather than a reversal in the housing market. Further evidence that the weakness is seasonal is seen in the seasonally adjusted figures: only New York saw prices fall on a seasonally adjusted basis while Cleveland was flat.
Regional patterns are shifting as well. The Southwest – Las Vegas and Phoenix – are staging a strong comeback with the Southeast — Miami and Tampa close behind. The sunbelt, which bore the brunt of the housing collapse, is back in a leadership position. California is also doing well while the northeast and industrial Midwest is lagging somewhat.
“Housing is clearly recovering. Prices are rising as are both new and existing home sales. Existing home sales in November were 5.0 million, highest since November 2009. New Home sales at 398,000 were the highest since June 2010. These figures confirm that housing is contributing to economic growth.
CoreLogic suggests home prices will continue to recover (November Data):
“As we close out 2012 the pending index suggests prices will remain strong,” said Mark Fleming, chief economist for CoreLogic. “Given that the recently released Qualified Mortgage rules issued by the Consumer Financial Protection Bureau are not expected to significantly restrict credit availability relative to today, the gains made in 2012 will likely be sustained into 2013.”
“For the first time in almost six years, most U.S. markets experienced sustained increases in home prices in 2012,” said Anand Nallathambi, president and CEO of CoreLogic. “We still have a long way to go to return to 2005-2006 levels, but all signals currently point to a progressive stabilization of the housing market and the positive trend in home price appreciation to continue into 2013.”
Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 6.7 percent in November 2012 compared to November 2011. On a month-over-month basis excluding distressed sales, home prices increased 0.9 percent in November 2012 compared to October 2012. Distressed sales include short sales and real estate owned (REO) transactions.
The CoreLogic Pending HPI indicates that December 2012 home prices, including distressed sales, are expected to rise by 7.9 percent on a year-over-year basis from December 2011 and fall by 0.5 percent on a month-over-month basis from November 2012 reflecting a seasonal winter slowdown. Excluding distressed sales, December 2012 house prices are poised to rise 8.4 percent year-over-year from December 2011 and by 0.7 percent month-over-month from November 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 for the most recent month.”
The National Association of Realtors believes momentum is continuing to build in the housing market (December 2012 data):
Lawrence Yun , NAR chief economist, said pent-up demand is sustaining the market. “Record low mortgage interest rates clearly are helping many home buyers, but tight inventory and restrictive mortgage underwriting standards are limiting sales,” he said. “The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market early last year as their financial ability and confidence steadily grew, along with home prices. Likely job creation and household formation will continue to fuel that growth. Both sales and prices will again be higher in 2013.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said affordability conditions will be fairly stable in the near term. “Although mortgage interest rates should gradually rise as the year progresses, they’re expected to stay below 4 percent during the first half of the year, meaning qualified buyers generally can stay well within their means,” he said.
Distressed homes – foreclosures and short sales – accounted for 24 percent of December sales (12 percent were foreclosures and 12 percent were short sales), up from 22 percent in November but below the 32 percent share in December 2011. Foreclosures sold for an average discount of 17 percent below market value in December, while short sales were discounted 16 percent.
Lender Processing Services (LPS) November 2012 home price index rose 0.5% month-over-month and 5.1% 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