Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 5.3 % to 5.1 %. However, the index authors stated “home prices have risen at a consistent 4.8% annual pace over the last two years without showing any signs of slowing”.
Analyst Opinion of Case-Shiller HPI
Recently, there has been an almost insignificant slowing of the Case Shiller HPI year-over-year growth. Many pundits believe home prices are back in a bubble. Maybe, but the falling inventory of homes for sale keeps home prices relatively high. I see this a situation of supply and demand.
- 20 city unadjusted home price rate of growth decelerated 0.2 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
- Note that Case-Shiller index is an average of the last three months of data.
- The market expected:
| Consensus Range | Consensus | Actual | |
| 20-city, SA – M/M | -0.2 % to 0.9 % | 0.1 % | -0.1 % |
| 20-city, NSA – M/M | +0.8 % | ||
| 20-city, NSA – Yr/Yr | 4.8 % to 5.5 % | 5.2 % | +5.1 % |
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.
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 stabilize (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 continued to rise across the country led by the west and the south. In the strongest region, the Pacific Northwest, prices are rising at more than 10%; in the slower Northeast, prices are climbing a bit faster than inflation. Nationally, home prices have risen at a consistent 4.8% annual pace over the last two years without showing any signs of slowing.
Overall, residential real estate and housing is in good shape. Sales of existing homes are at running at about 5.5 million units annually with inventory levels under five months, indicating a fairly tight market. Sales of new single family homes were at a 654,000 seasonally adjusted annual rate in July, the highest rate since November 2007. Housing starts in July topped an annual rate of 1.2 million PRESS RELEASE c G R units. While the real estate sector and consumer spending are contributing to economic growth, business capital spending continues to show weakness.
CoreLogic believes low inventories are spurring rising home prices (June 2016 Data). Per Dr Frank Nothaft, chief economist for CoreLogic and Anand Nallathambi, president and CEO of CoreLogic stated:
Mortgage rates dipped in June to their lowest level in more than three years, supporting home purchases. Local markets with strong economic growth have generally had stronger home-price growth. Among large metropolitan areas, Denver had the lowest unemployment rate and the strongest home-price appreciation.
Home prices continue to increase across the country, especially in the lower price ranges and in a number of metro areas. We see prices continuing to increase at a healthy rate over the next year by as much as 5 percent.
The National Association of Realtors says home sales prices continue to increase (July 2016 data):
Lawrence Yun, NAR chief economist, says existing sales fell off track in July after steadily climbing the last four months. “Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” he said. “Realtors® are reporting diminished buyer traffic because of the scarce number of affordable homes on the market, and the lack of supply is stifling the efforts of many prospective buyers attempting to purchase while mortgage rates hover at historical lows.”
Adds Yun, “Furthermore, with new condo construction barely budging and currently making up only a small sliver of multi-family construction, sales suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home.”
“Although home sales are still expected to finish the year at their strongest pace since the downturn, thanks to a very strong spring, the housing market is undershooting its full potential because of inadequate existing inventory combined with new home construction failing to catch up with underlying demand,” adds Yun. “As a result, sales in all regions are now flat or below a year ago and price growth isn’t slowing to a healthier and sustainable pace.”
NAR President Tom Salomone says in addition to affordability concerns, an issue seen earlier in the housing recovery may be reemerging. Realtors® are indicating that appraisal complications are appearing more frequently as the reason why a contract signing experienced a delayed settlement.
“Appraisal-related contract issues have notably risen over the past year and were the root cause of over a quarter of contract delays in the past three months 5,” he said. “This is likely a combination of sharply growing home prices in some areas, the uptick in home sales this year and the strong refinance market overworking the already reduced number of practicing appraisers. Realtors® are carefully monitoring this trend, and some have already indicated they’re extending closing dates on contracts to allow extra time to accommodate the possibility of appraisal-related delays.”
Black Knight Financial Services (formerly known as Lender Processing Services) June 2016 home price index Up 0.8 Percent for the Month; Up 5.3 Percent Year-Over-Year. Note that Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.
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.
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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