Written by Steven Hansen
The non-seasonally adjusted S and P CoreLogic Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 4.2 % last month to 3.6 %. The index authors stated “In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018″.
Analyst Opinion of Case-Shiller HPI
Home prices could not keep increasing faster than the general inflation rate forever. This month the slowing (actually the selling prices for houses dropped from December to January) year-over-year growth rate is good news for the economy. The data this month was well short of market expectations.
- 20 city unadjusted home price rate of growth decelerated 0.6 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in the rate of growth]
- Note that the Case-Shiller index is an average of the last three months of data.
- The market expected from Econoday:
Consensus Range | Consensus | Actual | |
20-city, SA – M/M | 0.0 % to 0.3 % | +0.3 % | +0.1 % |
20-city, NSA – M/M | -0.1 % to 0.4 % | 0.0 % | -0.2 % |
20-city, NSA – Yr/Yr | 3.8 % to 4.5 % | +4.2 % | +3.6 % |
S&P/Case-Shiller Home Price Indices Year-over-Year Change
Comparing the NAR and Case-Shiller 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 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 price gains continue to shrink. In the year to January, the S&P CoreLogic Case-Shiller National Index rose 4.3%, two percentage points slower than its pace in January 2018. The last time it advanced this slowly was April 2015. In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018. Only Phoenix saw any appreciable acceleration. Some cities where prices surged in 2017-2018 now face much smaller increases: in Seattle, annual price gains dropped from 12.8% to 4.1% from January 2018 to January 2019. San Francisco saw annual price increases shrink from 10.2% to 1.8% over the same time period..
Mortgage rates are as important as prices for many home buyers. Mortgage rates climbed from 3.95% in January 2018 to a peak of 4.95% in November 2018. Since then, rates have dropped to 4.28% as of mid-March. Sales of existing single-family homes slid gently downward from the 2017 fourth quarter until January of this year before jumping higher in February 2019. Home sales annual rate dropped from 5 million units in February 2018 to 4.36 million units in January 2019 before popping to 4.94 in February. It remains to be seen if recent low mortgage rates and smaller price gains can sustain improved home sales.
CoreLogic believes affordability is slowing home price growth (January 2019 Data). Per Dr. Frank Nothaft, chief economist for CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
The spike in mortgage interest rates last fall chilled buyer activity and led to a slowdown in home sales and price growth. Fixed-rate mortgage rates have dropped 0.6 percentage points since November 2018 and today are lower than they were a year ago. With interest rates at this level, we expect a solid home-buying season this spring.
The slowing growth in home prices was inevitable in many respects as buyers pull back in the face of higher borrowing and ownership costs. As we head into 2019, we can expect continued strong employment growth and rising incomes which could support a reacceleration in home-price appreciation later this year.
The National Association of Realtors also worries about affordability (February 2019 data):
Lawrence Yun, NAR’s chief economist, credited a number of aspects to the jump in February sales. “A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound.”
“It is very welcoming to see more inventory showing up in the market,” says Yun. “Consumer foot traffic consequently is rising as measured by the opening rate of SentriLockÒ key boxes.”
Yun, who has called for more inventory over the course of 2018, says the market would benefit greatly in 2019 with additional new housing.
“For sustained growth, significant construction of moderately priced-homes is still needed. More construction will help boost local economies and more home sales will help lessen wealth inequality as more households can enjoy in housing wealth gains.” A typical homeowner accumulated an estimated $8,700 in housing equity over the past 12 months and $21,300 over the past 24 months.
“We’re very happy to see homebuyers returning to the market, as the beginning of Spring represents a prime time to purchase a new home,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota and broker at Edina Realty. “Potential buyers and sellers should seek out a local RealtorÒ to stay abreast of the market and take advantage of the various housing benefits that are currently being extended during housing transactions.”
The U.S. Federal Housing Finance Agency produces an All-Transactions House Price Index for the United States:
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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