Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for June 2013 (released today) showed the 13th year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home price rate of growth decelerated 0.1% month-over-month.
- Home prices increased 12.1% year-over-year.
- The market had expected a year-over-year increase of 12% (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 a slowing of pace.
National home prices rose more than 10% annually in each of the last two quarters. However, the monthly city by city data show the pace of price increases is moderating.
The Southwest and California have consistently led the recovery with Las Vegas, Los Angeles, Phoenix and San Francisco posting at least 15 months of gains. Looking at the cities, New York recorded its highest monthly return since 2002. Atlanta was up the most at +3.4% and Washington DC had the lowest return at +1.0%. In terms of annual rates of change, San Francisco lost its leadership position with Las Vegas showing the highest post-recession gain of 24.9%.
Overall, the report shows that housing prices are rising but the pace may be slowing. Thirteen out oftwenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.
Other housing news is positive, but not as robust as last spring. Starts and sales of new homes continue to lag the stronger pace set by existing homes. Despite recent increases in mortgage interest rates, affordability is still good as credit qualifications have eased somewhat.
CoreLogic suggests home prices will continue to recover (June Data). Per Mark Fleming, chief economist for CoreLogic:
In the first six months of 2013, the U.S. housing market appreciated a remarkable 10 percent. This trend in home price gains is moving at the fastest pace since 1977.
The U.S. housing market experienced robust price appreciation during the first half of 2013 and our forecast calls for double-digit growth through July. Despite their rebound of late, home prices remain reasonable in a historical context, with most states near peak affordability levels.
The National Association of Realtors believes the market could be better if there was more NEW homes for sale (July 2013 data). Per Lawrence Yun , NAR chief economist:
Changes in affordability are impacting the market. Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines. The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers.
Despite higher mortgage interest rates, there are compensating factors that can sustain a continued recovery. Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.
Lender Processing Services (LPS) June 2013 home price index up 1.2% for the Month; Up 8.4% 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