Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth improved to 5.8 %. The authors of the index say “Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market.“
- 20 city unadjusted home price rate of growth accelerated 0.3 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
- The market expected:
| Consensus Range | Consensus | Actual | |
| 20-city, SA – M/M | 0.4 % to 1.1 % | 0.7 % | +0.9 % |
| 20-city, NSA – Y/Y | 5.5 % to 5.9 % | 5.7 % | +5.8 % |
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)
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The way to understand the dynamics of home prices is to watch the direction of the rate of change. Here home price growth generally appears to be stabilizing (rate of growth not rising or falling).
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)
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There are some differences between the indices on the rate of “recovery” of home prices.
A synopsis of Authors of the Leading Indices:
Case Shiller’s David M. Blitzer, Chairman of the Index Committee at S&P Indices:
“Home prices extended their gains, supported by continued low mortgage rates, tight supplies and an improving labor market,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Sales of existing homes were up 6.5% in 2015 vs. 2014, and the number of homes on the market averaged about a 4.8 months’ supply during the year; both numbers suggest a seller’s market. The consumer portion of the economy is doing well; like housing, automobile sales were quite strong last year. Other parts of the economy are not faring as well. Businesses in the oil and energy sectors are suffering from the 75% drop in oil prices in the last 18 months. Moreover, the strong U.S. dollar is slowing exports. Housing is not large enough to offset all of these weak spots.
“Home prices continue to recover from the collapse that began before the recession of 2007-2009 and continued until 2012. Three cities – Dallas, Denver and Portland OR – have reached new all-time highs; San Francisco is even with its earlier peak and Charlotte NC is less than one percent below its previous peak. The S&P/Case-Shiller National Home Price Index is about 4.8% below the peak it set in July 2006, and 29.2% above the bottom it touched in January 2012. By comparison, the S&P 500 as of Friday, January 22nd is up 46% from January 2012 – better than the S&P/Case-Shiller National Home Price series and about the same as Los Angeles. The chart shows how far the 20 cities have rebounded from the National Index bottom.
CoreLogic believes low inventories are spurring rising home prices (November Data). Per Dr Frank Nothaft, chief economist for CoreLogic:
Heading into 2016, home price growth remains in its sweet spot as prices have increased between 5 and 6 percent on a year-over-year basis for 16 consecutive months. Regionally we are beginning to see fissures, with slowdowns in some Texas and California markets, but the northwest and southeast remain on solid footing.
The National Association of Realtors says home sales prices have moderated (December 2015 data):
Lawrence Yun, NAR chief economist, says December’s robust bounce back caps off the best year of existing sales (5.26 million) since 2006 (6.48 million). “While the carryover of November’s delayed transactions into December contributed greatly to the sharp increase, the overall pace taken together indicates sales these last two months maintained the healthy level of activity seen in most of 2015. Additionally, the prospect of higher mortgage rates in coming months and warm November and December weather allowed more homes to close before the end of the year.”
“Although some growth is expected, the housing market will struggle in 2016 to replicate last year’s 7 percent increase in sales,” adds Yun. “In addition to insufficient supply levels, the overall pace of sales this year will be constricted by tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas.”
“First-time buyers were for the most part held back once again in 2015 by rising rents and home prices, competition from vacation and investment buyers and supply shortages,” says Yun. “While these headwinds show little signs of abating, the cumulative effect of strong job growth in recent years and young renters’ overwhelming interest to own a home5 should lead to a modest uptick in first-time buyer activity in 2016.”
“December’s rebound in sales is reason for cautious optimism that the work to prepare for Know Before You Owe is paying off,” says NAR President Tom Salomone. “However, our data is still showing longer closing timeframes, which is a reminder that the near-term challenges we anticipated are still prevalent. NAR advised members to extend the time horizon on their purchase contracts to address this concern, and we’ll continue to work with our industry partners to ensure 2016 is a success for consumers, homeowners and Realtors® alike.”
Black Knight Financial Services (formerly known as Lender Processing Services) October 2015 home price index Up 0.2 Percent for the Month; Up 5.5 Percent 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)
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
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