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 improved from 2.9 % to 3.1 %. The index authors stated, “Results for the month were broad-based, with gains in every city in our 20-City Composite“.
Analyst Opinion of Case-Shiller HPI
All home price indices are continuing to show home price growth is accelerating year-over-year. It will be interesting to watch the effect of the coronavirus on home prices.
- 20 city unadjusted home price rate of growth accelerated by 0.2 % 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 0.5 % | +0.4 % | +0.3 % |
20-city, NSA – M/M | +0.0 % | ||
20-city, NSA – Yr/Yr | 3.1 % to 3.3 % | +3.2 % | +3.1 % |
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.
When asked what today’s release means for the housing market, Dr. Frank Nothaft, chief economist for CoreLogic said:
The Case-Shiller Indexes for January show a housing market with solid momentum prior to the COVID-19 pandemic. Home buyer demand was supported by low mortgage rates and rising income, leading to a further rise in home prices. The novel coronavirus has placed a cloud over the spring buying season, and home sales will likely be much lower than had previously been expected.
A synopsis of Authors of the Leading Indices:
Case Shiller’s Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices stated:
The trend of stable growth established in 2019 continued into the first month of the new year. The National Composite Index rose by 3.9% in January 2020, and the 10- and 20-City Composites also advanced (by 2.6% and 3.1% respectively). Results for the month were broad-based, with gains in every city in our 20-City Composite; 14 of the 20 cities saw accelerating prices. As has been the case since mid-2019, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in January than they had done in December.
At a regional level, Phoenix retains the top spot for the eighth consecutive month, with a gain of 6.9% for January. Seattle, Tampa, and San Diego all rose by 5.1%. Housing prices were particularly strong in the West and South, and comparatively weak in the Midwest and Northeast. “It is important to bear in mind that today’s report covers real estate transactions closed during the month of January. The COVID-19 pandemic did not begin to take hold in the U.S. until late February, and thus whatever impact it will have on housing prices is not reflected in today’s data.
The U.S. housing market continued its trend of stable growth in December. December’s results bring the National Composite Index to a 3.8% increase for calendar 2019. This marks eight consecutive years of increasing housing prices (an increase which is echoed in our 10- and 20-City Composites). At the national level, home prices are 59% above the trough reached in February 2012, and 15% above their pre-financial crisis peak. Results for 2019 were broad-based, with gains in every city in our 20-City Composite.
CoreLogic believes affordability is now improving (Janurary 2020 Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
Despite a slowdown in home price growth last summer, annual appreciation is beginning to stabilize. While just under half of millennials feel confident they can afford to purchase a home, housing starts have shot up, and mortgage rates have come down, which has helped improve affordability and spur overall housing demand.
January marked the third consecutive month that annual home price growth accelerated in our national index, as low mortgage rates and rising income supported home sales. In February, mortgage rates fell to the lowest level in more than three years, which likely will spur additional home shopping activity and price appreciation.
The National Association of Realtors says (February 2020 data):
February’s sales of over 5 million homes were the strongest since February 2007. I would attribute that to the incredibly low mortgage rates and the steady release of a sizable pent-up housing demand that was built over recent years.
February’s home sales were encouraging but not reflective of the current turmoil in the stock market or the significant hit the economy is expected to take because of the coronavirus and corresponding social quarantines. These figures show that housing was on a positive trajectory, but the coronavirus has undoubtedly slowed buyer traffic and it is difficult to predict what short-term effects the pandemic will have on future sales.
For the past couple of months, we have seen the number of buyers grow as more people enter the market. Once the social-distancing and quarantine measures are relaxed, we should see this temporary pause evaporate, and will have potential buyers return with the same enthusiasm.
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 by 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
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>