Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for September 2013 (released today) showed the 16th consecutive monthly year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home price rate of growth accelerated 0.7% month-over-month.
- Home prices increased 13.3% year-over-year.
- The market had expected a year-over-year increase of 13.0% (versus the 13.3% reported).
- Case-Shiller is now showing the highest year-over-year home price gains of any home price index.
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.
The second and third quarters of 2013 were very good for home prices. The National Index is up 11.2% year-over-year, the strongest figure since the boom peaked in 2006. The 10-City and 20-City Composites year-over-year growth at 13.3% was their highest annual numbers since February 2006.
Twelve cities posted double-digit annual returns. Regionally, the West continues to lead with Las Vegas gaining 29.1% year-over-year followed by San Francisco at 25.7%, Los Angeles at 21.8% and San Diego at 20.9%. San Francisco and Los Angeles showed their highest annual returns since March 2001 and December 2005. Although Chicago has not reached double-digit growth, the city recorded its highest year-over-year gain since November 2005.
The strong price gains in the West are sparking questions and concerns about the possibility of another bubble. However the talk is focused on fear of a bubble, not a rush to join the party and buy. Moreover, other data suggest a market beginning to shift to slower growth rather than one about to accelerate. Existing home sales weakened in the most recent report, home construction remains far below the boom levels of six or seven years ago and interest rates are expected to be higher a year from now.
Housing continues to emerge from the financial crisis: the proportion of homes in foreclosure is declining and consumers’ balance sheets are strengthening. The longer run question is whether household formation continues to recover and if home ownership will return to the peak levels seen in 2004.
CoreLogic sees room for improvement (September Data). Per Mark Fleming, chief economist for CoreLogic and Anand Nallathambi, president and CEO of CoreLogic:
September marked the unofficial five-year anniversary of the start of the housing crisis. The five-year home price appreciation for all homes in the nation was 3.4 percent. While there is still room for improvement, the CoreLogic HPI is at the highest level since May 2008.
U.S. home prices continued their ascent in September. Average home prices in nearly half the states are now within striking distance of their pre-downturn pricing peaks. We are seeing a slowdown in the rate of price appreciation over the past few months from the rapid pace experienced over the first half of this year. This deceleration is natural and should help keep market fundamentals in balance over the longer-term.
The National Association of Realtors believes the market has flattened (October 2013 data). Per Lawrence Yun , NAR chief economist:
A flattening trend is expected. The erosion in buying power is dampening home sales. Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains.
Lender Processing Services (LPS) September 2013 home price index up 0.2% for the Month; Up 9.0% 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