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 3.1 % to 3.5 %. The index authors stated, “… today’s report covers real estate transactions closed during the month of February, and shows no signs of any adverse effect from the governmental suppression of economic activity in response to the COVID-19 pandemic. As much of the U.S. economy was shuttered in March, next month’s data may begin to reflect the impact of these policies on the housing market”.
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 which we should begin to see with next month’s data.
- 20 city unadjusted home price rate of growth accelerated by 0.3 % 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 | 0.1 % to 0.5 % | +0.4 % | +0.4 % |
20-city, NSA – M/M | +0.5 % | ||
20-city, NSA – Yr/Yr | 3.1 % to 3.5 % | +3.2 % | +3.5 % |
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, Selma Hepp, deputy chief economist for CoreLogic said,
The Case-Shiller Indexes for February showed strong enthusiasm in the housing market prior to the COVID-10 pandemic. Home buyers, particularly millennials, were encouraged by falling mortgage rates and a strong employment market. But, developing insights into COVID-19 impacts on the U.S. economy put some uncertainty around housing markets. Mortgage rates remain historically low and millennials are still active in the market, which suggests that while the spring home-buying season may be disappointing, there are promising fundamentals for the housing market when the economy picks up speed again.
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 stable growth pattern established in the last half of 2019 continued into February. The National Composite Index rose by 4.2% in February 2020, and the 10- and 20-City Composites also advanced (by 2.9% and 3.5%, respectively). Results for the month were broad-based, with gains in every city in our 20-City Composite; 17 of the 20 cities saw accelerating prices. The National, 10-City, and 20-City Composites all rose at a faster rate in February than they had in January.
At a regional level, Phoenix retains the top spot for the ninth consecutive month, with a gain of 7.5% for February. Home prices in Seattle rose by 6.0%, with Tampa and Charlotte prices both gaining 5.2%. Prices were particularly strong in the West and Southeast, and comparatively weak in the Midwest and Northeast.
Importantly, today’s report covers real estate transactions closed during the month of February, and shows no signs of any adverse effect from the governmental suppression of economic activity in response to the COVID-19 pandemic. As much of the U.S. economy was shuttered in March, next month’s data may begin to reflect the impact of these policies on the housing market.
CoreLogic believes there is significant uncertainty moving forward (February 2020 Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
The nearly 10-year-old recovery of the U.S. housing market has run headlong into the panic and uncertainty from the global COVID-19 pandemic. In terms of home value trends, we are in uncharted territory as we battle the outbreak with measures that are generating a never-before-seen, rapid downshift in economic activity and employment. We expect that many homeowners will initially be somewhat cushioned by government programs, ultra-low interest rates or have adequate reserves to weather the storm. Over the second half of the year, we predict unemployment and other factors will become more pronounced, which will apply additional pressure on housing activity in the medium term.
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.
The National Association of Realtors says (March 2020 data):
Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak. More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.
Earlier in the year, we watched inventory gradually tick upward but with the current quarantine recommendations in place, fewer sellers are listing homes, which will limit buyer choices. Significantly more listings are needed and more will come on to the market once the economy steadily reopens.
Despite the social distancing restrictions, with many Realtors® conducting virtual open home tours and with mortgage rates on the decline, a number of first-time buyers were still able to purchase housing last month.
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
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