Dec 20, 2012

Case-Shiller Shows Home Prices Up 4.3% From Year Earlier

The recently released S&P/Case-Shiller Home Price Indices (HPI) outstripped analysts expectations with strong increases in home prices over the 12 months ending in October.  Both the 20-City and the 10-City showed anticipated seasonal weaknesses in October itself, however and along with 12 of the 20 cities, posted a monthly price decrease.

The 10-City Composite Index was up 3.4 percent on an annual basis in October compared to 2.1 percent in September and the 20-City Composite rose 4.3 percent compared to 3.0 percent.  On a month-over-month basis both composites declined 0.1 percent.   S&P/Case-Shiller presents most of its data on a non-seasonally adjusted basis.

In 19 of the 20 cities the annual increase in October was higher than that in September and only two cities, Chicago and New York, had negative annual returns.  The recovery seems well established in some markets; for example Phoenix home prices increased for the 13th consecutive month and San Diego for the ninth.
David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices said, "The October monthly numbers were weaker than September as 12 cities saw prices drop compared to seven the month before.  The five which turned down in October but not in September, were Atlanta, Dallas, Miami, Minneapolis and Seattle. Among all 20 cities, Chicago was the weakest with prices dropping 1.5%, followed by Boston where prices fell 1.4%. Las Vegas saw the strongest one-month gain with prices up 2.8%.
"Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes," Blitzer said, "because home prices tend to be lower in fall and winter than in spring and summer.  Both the 10- and 20-City Composites and 19 of 20 cities recorded higher annual returns in October 2012 than in September. The impact of the seasons can also be seen in the seasonally adjusted data where only three cities declined month-to-month. The 10-City Composite annual rate of +3.4% in October was lower than the 20-City Composite annual figure of +4.3% because the two weaker cities - Chicago and New York - have higher weights in the 10-City Composite."

Blitzer said it is clear that the housing recovery is gathering strength.  Continued annual price gains and the strong performances in both the southwest and in California, both of which were strongly affected by the housing bust, "confirm that housing is now contributing to the economy. Last week's final revision to third quarter GDP growth showed that housing represented 10% of the growth while accounting for less than 3% of GDP."

Even cities at the bottom are showing gains.  Detroit had a 24.2 percent annual increase even though prices there are still about 20 percent lower than they were 12 years ago.  Blitzer also cited 22.5 percent and 22.1 percent increases in San Francisco and Phoenix from their recent lows and prices "comfortably higher" than 12 years ago.

As of October average home prices nationwide were back to autumn 2003 levels.  Measured from their June/July 2006 peaks, the decline for both Composites is approximately 30% through October 2012 and approximately 35% from the June/July 2006 peak values to their recent lows in early 2012. The October 2012 levels for both Composites are about 8.4 to 9% above their early 2012 lows.

In October 2012, 12 MSAs and both Composites posted negative month-over-month returns. Detroit, Las Vegas, Los Angeles, Phoenix, Portland, San Diego and San Francisco were the only cities that recorded positive monthly returns. Denver remained flat.

The S&P/Cash Shiller Home Price Index is a composite of single family home price indices for the nine U.S. Census divisions and is calculated quarterly. The 10- and 20-City indices are weighted averages of metropolitan area indices. Each index has a base value of 100 in January 2000. 

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