Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) for October 2013 (released today) showed the 17th consecutive monthly year-over-year gain in housing prices since the end of the housing stimulus in 2010.
- Home price rate of growth accelerated 0.2% month-over-month.
- Home prices increased 13.6% year-over-year.
- The market had expected a year-over-year increase of 11.4 % to 14.0 % (versus the 13.6% 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.
Home prices increased again in October,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Both Composites’ annual returns have been in double-digit territory since March 2013 and increasing; now up 13.6% in the year ending in October. However, monthly numbers show we are living on borrowed time and the boom is fading.
The year-over-year figures increased slightly from last month. Thirteen cities and both Composites posted double-digit annual returns. Cities at the top of the range (Las Vegas, San Diego and San Francisco) saw smaller annual increases. On the other hand, cities that have been relatively underperforming (Cleveland, New York and Washington) saw their annual gains grow. Miami showed the most improvement. Chicago recorded its highest annual rate (+10.9%) since December 1988. Charlotte and Dallas posted annual increases of 8.8% and 9.7%, their highest since the inception of their indices in 1987 and 2000.
The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates. Other housing data paint a mixed picture suggesting that we may be close to the peak gains in prices. However, other economic data point to somewhat faster growth in the new year. Most forecasts for home prices point to single digit growth in 2014.
CoreLogic sees a growth slowdown (October Data). Per Mark Fleming, chief economist for CoreLogic and Anand Nallathambi, president and CEO of CoreLogic:
In terms of home price appreciation, the housing market appears to be catching its breath as we head into the final months of 2013. The deceleration in month-on-month trends was anticipated as strong gains in home prices over the spring and summer slow in line with normal seasonal patterns and the impact of higher mortgage interest rates.
In October, the year-over-year appreciation rate remained strong, but the month-over-month appreciation rate was barely positive, indicating that house price appreciation has slowed as expected for the winter. Based on our pending HPI, the monthly growth rate is expected to moderate even further in November and December. The slowdown in price appreciation is positive for the housing market as almost half the states are now within 10 percent of their respective historical price peaks.
The National Association of Realtors believes the market has flattened (November 2013 data). Per Lawrence Yun , NAR chief economist:
The market is being squeezed. Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit. There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.
Lender Processing Services (LPS) October 2013 home price index up 0.1% for the Month; Up 8.8% 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