Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for February 2013 (released today) showed the ninth year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Non-seasonally adjusted home prices rose 0.3% month-to-month – and historically rises between January and February are unusual.
- Home prices increased year-over-year 9.3% (versus the originally reported 8.1% in January).
- The market had expected a year-over-year increase 8.7% (versus the 9.3% reported)
Case-Shiller home price index has shown year-over-year price improvement for the last nine 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 over a year has 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 the housing market as one of the bright spots of the economy.
“Home prices continue to show solid increases across all 20 cities,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The 10- and 20-City Composites recorded their highest annual growth rates since May 2006; seasonally adjusted monthly data show all 20 cities saw higher prices for two months in a row – the last time that happened was in early 2005.
“Phoenix, San Francisco, Las Vegas and Atlanta were the four cities with the highest year-over-year price increases. Atlanta recovered from a wave of foreclosures in 2012 while the other three were among the hardest hit in the housing collapse. At the other end of the rankings, three older cities – New York, Boston and Chicago – saw the smallest year-over-year price improvements.
“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy. The 2013 first quarter GDP report shows that residential investment accelerated from the 2012 fourth quarter and made a positive contribution to growth. One open question is the mix of single family and apartments; housing starts data show a larger than usual share is apartments.”
CoreLogic suggests home prices will continue to recover (February Data). Per Mark Fleming, chief economist for CoreLogic:
The rebound in prices is heavily driven by western states. Eight of the top ten highest appreciating large markets are in California, with Phoenix and Las Vegas rounding out the list.
Home prices continued their march upward in February. Nationally, home prices improved at the best rate since mid-2006, marking a full year of annual increases and underscoring the ongoing strengthening of market fundamentals. Continued home price appreciation will provide fuel needed to drive further recovery in the home purchase market.
Excluding distressed sales, home prices increased on a year-over-year basis by 10.1 percent in February 2013 compared to February 2012. On a month-over-month basis, excluding distressed sales, home prices increased 1.5 percent in February 2013 compared to January 2013. Distressed sales include short sales and real estate owned (REO) transactions.
The National Association of Realtors believes the market could be better if there was more homes for sale (March 2013 data). Per Lawrence Yun , NAR chief economist:
There is more demand than supply in the current market. Buyer traffic is 25 percent above a year ago when we were already seeing notable gains in shopping activity. In the same timeframe housing inventories have trended much lower, which is continuing to pressure home prices. The good news is home construction is rising and low mortgage rates are continuing to keep affordability conditions at historically favorable levels. The bad news is that underwriting standards remain excessively tight, while renters are getting squeezed by higher rents.
Homes are selling much faster. The typical home sold in March was on the market for one month less than it took to sell a year ago,” he said. “Multiple bidding is becoming more common, and more homes are selling above the asking price, so buyers need to move quickly and follow their Realtor®’s advice for contingencies when making contract offers.
Lender Processing Services (LPS) February 2013 home price index rose 1.0% month-over-month and 7.3% 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