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 2.5 % to 2.4 %. The index authors stated, “Though home price gains seem generally sustainable for the time being, there are significant variations between YOY rates of change in individual cities”.
Analyst Opinion of Case-Shiller HPI
The continued slowing of the year-over-year growth rate is good news for the economy. Note that the NAR’s existing home prices are trending up – the exact opposite of Case-Shiller.
- 20 city unadjusted home price rate of growth decelerated 0.1 % 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 | 0.2 % to 0.2 % | +0.2 % | +0.1 % |
20-city, NSA – M/M | 0.5 % to 0.6 % | +0.6 % | +0.6 % |
20-city, NSA – Yr/Yr | 2.4 % to 3.5 % | 2.6 % | +2.4 % |
S&P/Case-Shiller Home Price Indices Year-over-Year Change
When asked what today’s release means for the housing market, Dr. Ralph B. McLaughlin, deputy chief economist, and executive of research and insights for CoreLogic said,
The U.S. housing market cooldown continued in May, signaling the longest period of price growth anemia since the Great Recession. However, coupled with the recent drop in mortgage rates and incomes rising faster than inflation, the transition to a more balanced market should allow the industry to enter a period of sustainability into the foreseeable future.
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 Philip Murphy, Managing Director and Global Head of Index Governance at S&P Dow Jones Indices:
Nationally, year-over-year home price gains were lower in May than in April, but not dramatically so and a broad-based moderation continued. Among 20 major U.S. city home price indices, the average YOY gain has been declining for the past year or so and now stands at the moderate nominal YOY rate of 3.1%.
Though home price gains seem generally sustainable for the time being, there are significant variations between YOY rates of change in individual cities. Seattle’s home price index is now 1.2% lower than it was in May 2018, the first negative YOY change recorded in a major city in a number of years. On the other hand, Las Vegas and Phoenix, while cooler than they were during 2018, remain quite strong at 6.4% and 5.7% YOY gains, respectively. Whether negative YOY rates of change spread to other cities remains to be seen; for now, there is still substantial diversity in local trends. Nationally, increasing housing supply points to somewhat weakened demand, but the fact that seven cities experienced stronger YOY price gains in May than they did in April suggests an underlying resiliency that may mitigate the risk of overshooting to the downside at the national level.
CoreLogic believes affordability is now improving (May 2019 Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
Interest rates on fixed-rate mortgages fell by nearly one percentage point between November 2018 and this May. This has been a shot-in-the-arm for home sales. Sales gained momentum in May and annual home-price growth accelerated for the first time since March 2018.
The recent and forecasted acceleration in home prices is a good and bad thing at the same time. Higher prices and a lack of affordable homes are two of the most challenging issues in housing today, and every buyer, seller and industry participant is being impacted. The long-term solution lies in expanding supply, which will require aggressive and effective collaboration between policy makers, state and local government entities and home builders.
The National Association of Realtors says (May 2019 data):
“Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” said Lawrence Yun, NAR’s chief economist. Yun says the nation is in the midst of a housing shortage and much more inventory is needed. “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices,” he said.
Yun said other factors could be contributing to the low number of sales. “Either a strong pent-up demand will show in the upcoming months, or there is a lack of confidence that is keeping buyers from this major expenditure. It’s too soon to know how much of a pullback is related to the reduction in the homeowner tax incentive.”
“Historically, these rates are incredibly attractive,” said NAR President John Smaby, a second-generation Realtor from Edina, Minnesota and broker at Edin “Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country,” said Lawrence Yun, NAR’s chief economist. Yun says the nation is in the midst of a housing shortage and much more inventory is needed. “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices,” he said.
Yun said other factors could be contributing to the low number of sales. “Securing and locking in on a mortgage now – given the current, favorable conditions – is a decision that will pay off for years to come.”
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 in 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
0.5 % to 0.6 % |
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