Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for May 2013 (released today) showed the 12th year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Non-seasonally adjusted home prices rose 2.4% month-to-month.
- Home price rate of growth accelerated 0.1% month-over-month.
- Home prices increased 12.2% year-over-year.
- The market had expected a year-over-year increase of 10% to 10.5% (versus the 12.2% 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 some dynamic shifts.
Home prices continue to strengthen. Two cities set new highs, surpassing their pre-crisis levels and five cities – Atlanta, Chicago, San Diego, San Francisco and Seattle – posted monthly gains of over three percent, also a first time event.
The Southwest and the West saw the strongest year-over-year gains as San Francisco home prices rose 24.5% followed by Las Vegas (+23.3%) and Phoenix (+20.6%). New York (+3.3%), Cleveland (+3.4%) and Washington DC (+6.5%) were the weakest. Monthly numbers before seasonal adjustment showed all 20 cities experienced rising prices. San Francisco (+4.3%), Chicago (+3.7%) and Atlanta (+3.4%) were the leaders. However, two cities – Cleveland and Minneapolis were down slightly after seasonal adjustment.
The overall report points to some shifts among various markets: Washington DC is no longer the standout leader and the eastern Sunbelt cities, Miami and Tampa, are lagging behind their western counterparts.
CoreLogic suggests home prices will continue to recover (May Data). Per Mark Fleming, chief economist for CoreLogic:
It’s been more than seven years since the housing market last experienced the increases that we saw in May, with indications that the summer months will continue to see significant gains. As we approach the half-way point of 2013, home prices continue to respond positively to the reductions in home inventory thus far.
Across the country, pent-up demand and continued low interest rates are fueling strong demand for a limited inventory of properties. We expect that trend to continue to drive up prices throughout the balance of the summer months.
The National Association of Realtors believes the market could be better if there was more NEW homes for sale (June 2013 data). Per Lawrence Yun , NAR chief economist:
There is enough momentum in the market, even with higher interest rates. Affordability conditions remain favorable in most of the country, and we’re still dealing with a large pent-up demand. However, higher mortgage interest rates will bite into high-cost regions of California, Hawaii and the New York City metro area market.
Lender Processing Services (LPS) May 2013 home price index up 1.3% for the Month; Up 7.9% 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 – 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