Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for April 2013 (released today) showed the 11th year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Non-seasonally adjusted home prices rose 2.5% month-to-month – and historically rises between March and April are unusual.
- Home prices increased 12.1% year-over-year.
- The market had expected a year-over-year increase 10.5% (versus the 12.1% reported)
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 3 Month Average (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 Case Shiller and CoreLogic 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 3 Month Average (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.
“The 10- and 20-City Composites posted their highest monthly gains in the history of S&P/Case-Shiller Home Price Indices. Thirteen cities posted monthly increases of over two percentage points, with San Francisco leading at 4.9%.
“The recovery is definitely broad based. The two Composites showed the largest year-over-year gains in seven years. Atlanta, Las Vegas, Phoenix and San Francisco posted year-over-year gains of over 20% in April. San Francisco was the highest at 23.9%. Phoenix posted 12 consecutive months of double-digit growth. Recent economic data on home sales and inventories confirm the housing recovery’s strength.
“Last week’s comments from the Fed and the resulting sharp increase in Treasury yields sparked fears that rising mortgage rates will damage the housing rebound. Home buyers have survived rising mortgage rates in the past, often by shifting from fixed rate to adjustable rate loans. In the housing boom, bust and recovery, banks’ credit quality standards were more important than the level of mortgage rates. The most recent Fed Senior Loan Officer Opinion Survey shows that some banks are easing credit restrictions. Given this, the recovery should continue.”
CoreLogic suggests home prices will continue to recover (April Data). Per Mark Fleming, chief economist for CoreLogic:
Home price growth continues to surprise to the upside with and impressive 12.1 percent gain year over year in April.
The National Association of Realtors believes the market could be better if there was more NEW homes for sale (May 2013 data). Per Lawrence Yun , NAR chief economist:
The recovery is strengthening and to expect limited housing supplies for the balance of the year in much of the country. The housing numbers are overwhelmingly positive. However, the number of available homes is unlikely to grow, despite a nice gain in May, unless new home construction ramps up quickly by an additional 50 percent. The home price growth is too fast, and only additional supply from new homebuilding can moderate future price growth.
Lender Processing Services (LPS) April 2013 home price index up 1.5% for the Month; Up 8.1% 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