Written by Steven Hansen
The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was unchanged at 5.9 %. The index authors stated “If mortgage rates, currently near 4%, rise further, this could deter more people from selling and keep pressure on inventories and prices”.
Analyst Opinion of Case-Shiller HPI
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.
- 20 city unadjusted home price rate of growth was unchanged 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 | 0.4 % to 0.9 % | 0.8 % | +0.9 % |
| 20-city, NSA – M/M | 0.3 % to 0.4 % | 0.4 % | +1.0 % |
| 20-city, NSA – Yr/Yr | 5.3 % to 6.2 % | 5.8 % | +5.9 % |
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 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).
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 continue rising with the S&P Corelogic Case-Shiller National Index up 5.8% in the year ended March, the fastest pace in almost three years,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “While there is some regional variation, prices are rising across the U.S. Half of the 20 cities tracked by the S&P Corelogic Case-Shiller indices rose more than 6% from March 2016 to March 2017. The smallest gain of 4.1%, in New York, was roughly double the rate of inflation.
Sales of both new and existing homes, housing starts and the National Association of Home Builders’ sentiment index are all trending higher. Over the last year, analysts suggested that one factor pushing prices higher was the unusually low inventory of homes for sale. People are staying in their homes longer rather than selling and trading up. If mortgage rates, currently near 4%, rise further, this could deter more people from selling and keep pressure on inventories and prices. While prices cannot rise indefinitely, there is no way to tell when rising prices and mortgage rates will force a slowdown in housing.
CoreLogic believes low inventories are spurring rising home prices (February 2017 Data). Per Dr Frank Nothaft, chief economist for CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
Home prices posted strong gains in March 2017, and the CoreLogic Home Price Index is only 2.8 percent from its 2006 peak. With a forecasted increase of almost 5 percent over the next 12 months, the index is expected to reach the previous peak during the second half of this year. Prices in more than half the country have already surpassed their previous peaks, and almost 20 percent of metropolitan areas are now at their price peaks. Nationally, price growth has gradually accelerated over the past half-year, while rent growth for single-family rental homes has slowly decelerated over the same period, according to the CoreLogic Single-Family Rental Index, recording a 3 percent rise over the year through March.
A potent mix of strong job gains, household formation, population growth and still-attractive mortgage rates in the face of tight inventories are fueling a continuing surge in home prices across the U.S.. Price gains were broad-based with 90 percent of metropolitan areas posting year-over-year gains. Major metropolitan areas were especially hot with CoreLogic data indicating that four of the largest 10 markets are now overvalued. Geographically, gains were strongest in the West with Washington showing the highest appreciation at almost 13 percent, and Seattle, Tacoma and Bellingham posting gains of 13 to 14 percent.
The National Association of Realtors says home sales prices continue to increase (March 2017 data):
Lawrence Yun, NAR chief economist, says every major region except for the Midwest saw a retreat in existing sales in April. “Last month’s dip in closings was somewhat expected given that there was such a strong sales increase in March at 4.2 percent, and new and existing inventory is not keeping up with the fast pace homes are coming off the market,” he said. “Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase.”
“Realtors® continue to voice the frustration their clients are experiencing because of the insufficient number of homes for sale,” added Yun. “Homes in the lower- and mid-market price range are hard to find in most markets, and when one is listed for sale, interest is immediate and multiple offers are nudging the eventual sales prices higher.”
“Mortgage rates have been stuck in a holding pattern in recent months, which is a relief for spring homebuyers,” said Yun. “With price growth showing little sign of slowing, prospective first-time buyers will be the most sensitive to any sudden uptick in rates in the months ahead.”
President William E. Brown says it’s not only prospective homebuyers who are facing housing issues; many middle-income homeowners who benefit from the mortgage interest deduction could be slapped with a tax increase if some of the tax reform proposals currently being discussed go through. A recently released study commissioned by NAR titled, “Impact of Tax Reform Options on Owner-Occupied Housing,”(link is external) estimated taxes would rise on average by $815 each year for homeowners with adjusted gross incomes between $50,000 and $200,000. Furthermore, home values could shrink by an average of more than 10 percent, with areas with higher property taxes or state income taxes experiencing an even steeper decline.
Black Knight Financial Services (formerly known as Lender Processing Services) March 2017 home price index Up 1.3 Percent for the Month; Up 5.8 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)
The affordability factor favors rental vs owning.
Price to Rent Ratio – Indexed on January 2000 – Based on Case-Shiller 20 cities index ratio to CPI Rent Index
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