Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth marginally improved from 5.0 % to 5.1 %. The index authors stated “While the stock market recovery has been greater than the rebound in home prices, the value of Americans’ homes at about $22.3 trillion is slightly larger than the value of stocks and mutual funds at $21.2 trillion.”
Analyst Opinion of Case-Shiller HPI
Although over the past few years there has been a moderate slowing of the Case Shiller HPI year-over-year growth – this month saw a marginal improvement. 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 continue to see this a situation of supply and demand. It is the affordability of the homes which is becoming an issue for the lower segments of consumers. It is my belief that IF the Fed begins to normalize the federal funds rate – it will slow the growth rate of home prices. But for now, the merry ride continues.
- 20 city unadjusted home price rate of growth accelerated 0.1 % 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 | 0.0 % to 0.4 % | 0.2 % | +0.2 % |
| 20-city, NSA – M/M | +0.4 % | ||
| 20-city, NSA – Yr/Yr | 5.0 % to 5.3 % | 5.1 % | +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:
Supported by continued moderate economic growth, home prices extended recent gains. All 20 cities saw prices higher than a year earlier with 10 enjoying larger annual gains than last month. The seasonally adjusted month-over-month data showed that home prices in 14 cities were higher in August than in July. Other housing data including sales of existing single family homes, measures of housing affordability, and permits for new construction also point to a reasonably healthy housing market.
With the national home price index almost surpassing the peak set 10 years ago, one question is how the housing recovery compares with the stock market recovery. Since the last recession ended in June 2009, the stock market as measured by the S&P 500 rose 136% to the end of August while home prices are up 23%. However, home prices did not reach bottom until February 2012, almost three years later. Using the 2012 date as the starting point, home prices are up 38% compared to 59% for stocks. While the stock market recovery has been greater than the rebound in home prices, the value of Americans’ homes at about $22.3 trillion is slightly larger than the value of stocks and mutual funds at $21.2 trillion.
CoreLogic believes low inventories are spurring rising home prices (August 2016 Data). Per Dr Frank Nothaft, chief economist for CoreLogic and Anand Nallathambi, president and CEO of CoreLogic stated:
Home prices are now just 6 percent below the nominal peak reached in April 2006. With prices forecasted to increase by 5 percent over the next year, prices will be back to their peak level in 2017.
The strongest home price gains continue to be in the western region. As evidence, the Denver, Portland and Seattle metropolitan areas all recorded double-digit appreciation over the past year.Housing values continue to rise briskly on stronger fundamental and investor-fueled demand, as well as lack of adequate supply. This continued price appreciation is contributing to a growing affordability crisis in many markets around the country.
The National Association of Realtors says home sales prices continue to increase (September 2016 data):
Lawrence Yun, NAR chief economist, says recent job growth is not yielding higher home sales. “Healthy labor markets in most the country should be creating a sustained demand for home purchases,” he said. “However, there’s no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn’t picking up to tame price growth and replace what’s being quickly sold.”
“Inventory has been extremely tight all year and is unlikely to improve now that the seasonal decline in listings is about to kick in,” added Yun. “Unfortunately, there won’t be much relief from new home construction, which continues to be grossly inadequate in relation to demand.”
“There’s hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring,” explained Yun. “The market fundamentals — primarily consistent job gains and affordable mortgage rates — are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate.”
NAR President Tom Salomone stated unfortunately, overly burdensome fees at the GSEs are making homeownership difficult for moderate-income buyers. Fannie and Freddie can reduce the cost of borrowing while still protecting taxpayers, and we’re hopeful they’ll take these steps to ensure prospective buyers are able to enter the market,” he said.
Black Knight Financial Services (formerly known as Lender Processing Services) July 2016 home price index Up 0.4 Percent for the Month; Up 5.3 Percent Year-Over-Year (unchanged from last month). 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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