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 is now 17.0 %. The index authors stated, “all 20 cities rose, and all 20 gained more in the 12 months ended in May than they had gained in the 12 months ended in April. Prices in 18 of our 20 cities now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices”.
Analyst Opinion of Case-Shiller HPI
All home price indices are now showing home price growth is continuing year-over-year. The pandemic has little affected home prices (or sales for that matter).
- 20 city unadjusted home price rate of growth accelerated by 2.0 % 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 | 1.0 % to 1.7 % | +1.5 % | +1.8 % |
20-city, NSA – M/M | 1.2 % to 2.2 % | +1.7 % | +2.1 % |
20-city, NSA – Yr/Yr | 14.5 % to 16.4 % | +15.3 % | +17.0 % |
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 is now accelerating.
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 Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices stated:
Housing price growth set a record for the second consecutive month in May 2021. The National Composite Index marked its twelfth consecutive month of accelerating prices with a 16.6% gain from year-ago levels, up from 14.8% in April. This acceleration is also reflected in the 10- and 20-City Composites (up 16.4% and 17.0%, respectively). The market’s strength continues to be broadly-based: all 20 cities rose, and all 20 gained more in the 12 months ended in May than they had gained in the 12 months ended in April. Prices in 18 of our 20 cities now stand at all-time highs, as do the National Composite and both the 10- and 20-City indices.
A month ago, I described April’s performance as “truly extraordinary, and this month I find myself running out of superlatives. The 16.6% gain is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. As was the case last month, five cities – Charlotte, Cleveland, Dallas, Denver, and Seattle – joined the National Composite in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quartile of historical performance; in 17 cities, price gains were in top decile.
We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. May’s data continue to be consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.
Phoenix’s 25.9% increase led all cities for the 24th consecutive month, with San Diego (+24.7%) and Seattle (+23.4%) close behind. As was the case last month, prices were strongest in the West (+19.9%) and Southwest (+19.8%), but every region logged double-digit gains.
CoreLogic believes home demand will remain firm moving forward (May 2021 Data). Per Dr. Frank Nothaft, chief economist at CoreLogic and Frank Martell, president and CEO of CoreLogic stated:
There are marked differences in today’s run up in prices compared to 2005, which was a bubble fueled by risky loans and lenient underwriting. Today, loans with high-risk features are absent and mortgage underwriting is prudent. However, demand and supply imbalances — fueled by a drop in mortgage rates to less than one-half what they were in 2005 and a scarcity of for-sale homes — has fed the latest run up in sales prices.
First-time buyers are hitting a wall in many places around the country as the pace of home price rises outpace the benefits of lower borrowing costs. Younger and first-time buyers, including younger millennials, are faced with the challenge of having sufficient savings for a down payment, closing costs and cash reserves. As we look to the balance of 2021, we expect price rises to continue which could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.
From the National Association of Realtors (June 2021 data):
Supply has modestly improved in recent months due to more housing starts and existing homeowners listing their homes, all of which has resulted in an uptick in sales. Home sales continue to run at a pace above the rate seen before the pandemic.
At a broad level, home prices are in no danger of a decline due to tight inventory conditions, but I do expect prices to appreciate at a slower pace by the end of the year. Ideally, the costs for a home would rise roughly in line with income growth, which is likely to happen in 2022 as more listings and new construction become available.
Huge wealth gains from both housing equity and the stock market have nudged up all-cash transactions, but first-time buyers who need mortgage financing are being uniquely challenged with record-high home prices and low inventory. Although rates are favorably low, these hurdles have been overwhelming to some potential buyers.
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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