Case-Shiller: Seasonal Home Price Increase Underway in May 2011

Case-Shiller data for May 2011 released today continues to show less good seasonal improvement for the normal spring / summer buying season.

Home prices are currently 95.5% of the value of May 2010.   In March 2011, the Case-Shiller index was 96.0% of March 2010 index value.

Data through May 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed a second consecutive month of increase in prices for the 10- and 20-City Composites. The 10- and 20-City Composites were up 1.1% and 1.0%, respectively, in May over April. Sixteen of the 20 MSAs and both Composites posted positive monthly increases; Detroit, Las Vegas and Tampa were down over the month and Phoenix was unchanged.  On an annual basis, Washington DC was the only MSA with a positive rate of change, up 1.3%. The remaining 19 MSAs and the 10- and 20- City Composites were down in May 2011 versus the same month last year. Minneapolis fared the worst posting a double-digit decline of 11.7%.

The chart above depicts the annual returns of the 10-City and the 20-City Composite Home Price Indices.  In May 2011, the 10- and 20-City Composites recorded annual returns of -3.6% and -4.5%, respectively. Both Composites and 11 MSAs – Atlanta, Dallas, Detroit, Las Vegas, Los Angeles, Minneapolis, New York, Phoenix, San Diego, Seattle and Tampa – saw their annual rates worsen in May compared to April.

Comparing all the home price indices, it needs to be understood each of the indices use a different methodology in compiling their indexes – and no index is perfect.  What is interesting is the National Association of Realtors is showing an exaggerated seasonal bounce which may be due to a distortion caused by more higher value homes being sold.

The NAR home prices tend to have more noise in their data.

The upward bounce we are seeing is the annual seasonal bounce we see every year – and this effect has been forecast. The difference is the bounce is coming from a lower starting point in double dip territory. With weak sales figures so far this season, it does not look like a recovery is yet on the horizon.

A synopsis of Authors of the Leading Indices:

Case Shiller is uncertain of what the uptick in home prices is indicating.

“We see some seasonal improvements with May’s data,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This is a seasonal period of stronger demand for houses, so monthly price increases are to be expected and were seen in 16 of the 20 cities. The exceptions where prices fell were Detroit, Las Vegas and Tampa. However, 19 of 20 cities saw prices drop over the last 12 months. The concern is that much of the monthly gains are only seasonal.

“May’s report showed unusually large revisions across some of the MSAs. In particular, Detroit, New York, Tampa and Washington DC all saw above normal revisions. Our sales pairs data indicate that these markets reported a lot more sales from prior months, which caused the revisions. The lag in reporting home sales in these markets has increased over the past few months. Also, when sales volumes are relatively low, as is the case right now, revisions are more noticeable.

“Other recent housing statistics show that single-family housing starts were up moderately in June, and are at about the same pace as a year ago. Existing-home sales were flat in June, reportedly because of contract cancellations and tight credit. The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates since last winter. Other reports confirm that banks have tightened lending standards in the past year, making it harder to qualify for a mortgage despite very low interest rates.

Combined, these data all support a continuation of the ‘bounce-along-the-bottom’ scenario we have witnessed in the housing market over the past two years.

CoreLogic‘s Mark Fleming, chief economist is commenting on the first rise this year in their May index:

Two consecutive months of month-over-month growth and continued relative strength in the non-distressed market segment are positive seasonal signs in the housing market. Slowly declining shadow inventory and stabilized negative equity levels are also positive signs. Nonetheless, the fragile economic recovery is still critical to the long-term recovery in the housing market.

Lawrence Yun, NAR chief economist commenting on June 2011 data said this is an uneven recovery.

“Home sales had been trending up without a tax stimulus, but a variety of issues are weighing on the market including an unusual spike in contract cancellations in the past month.  The underlying reason for elevated cancellations is unclear, but with problems including tight credit and low appraisals, 16 percent of NAR members report a sales contract was cancelled in June, up from 4 percent in May, which stands out in contrast with the pattern over the past year.

Real time data provider Altos Research whose national index is updated through early July 2011 sees the autumn downturn in play:

Prices and inventory are steadily trending upward in the composite markets this month. The one-month numbers are reporting modest increases in list prices (1.37%) and inventory (0.35%).

The three-month numbers are still trending upward as well, with list prices up 2.31% and inventory up 3.52%. The 7-day prices reported a slight decline this week and the 90-day prices are still trending upward. As we’ve had several months of month over month price increases nationally, the S&P/Case-Shiller releases will report positive trends at least through the end of September.

Meanwhile the plateau in the Altos Research weekly numbers is the first indication of the autumn housing market. The Altos Research 20-City Composite weekly and 90-day price trends are displayed in the chart below.

Read through the related articles below from various authors. Econintersect publishes all knowledgeable views of the housing market. There is no dispute that home prices are improving, but this is normal this time of year. The common thread is that no one is seeing any indication that the general decline is over in existing home sales or prices.

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