US: S&P Case-Shiller HPI

Tue Aug 25 08:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
20-city, SA - M/M 0.1% -0.1% to 0.7% -0.1% -0.2% -0.1%
20-city, NSA - M/M 1.1% 0.6% to 1.2% 1.0% 1.1% 1.1%
20-city, NSA - Yr/Yr 5.2% 5.0% to 5.3% 5.0% 4.9% 5.0%

Inventories may be low and sales rates firm, but both Case-Shiller and FHFA are pointing to a surprising flat spot for home-price appreciation. Case-Shiller's 20-city adjusted index fell 0.1 percent in June vs Econoday expectations for a 0.1 percent rise. Year-on-year, 20-city prices, whether adjusted or unadjusted, are unchanged at plus 5.0 percent. This rate has been inching higher but looks like it may be ready to fall back unless prices pick up.

Eleven of 20 cities show declines in the month with Chicago showing the steepest at minus 1.7 percent. The biggest gainer in the month is Portland, Oregon, up 0.5 percent to extend a long run of solid gains. Year-on-year, Chicago is the weakest at plus 1.3 percent with Denver at the top at plus 10.2 percent followed by San Francisco at 9.5 percent.

Softness in home prices is a surprise and suggests that sellers are offering price concessions. Flexibility in price is a positive right now for sales but tightness in available homes for sales, along with strong demand tied to health in the labor market, point to firming prices ahead.

Market Consensus Before Announcement
Another month of disappointment is expected for Case-Shiller where the adjusted monthly gain for the 20-city index is seen at only 0.1 percent in June. This, however, would be an improvement from the 0.2 percent decline in May and no change in April. Year-on-year, rates are hovering near 5 percent which is roughly half the rate of sales growth for existing homes. Note the uncertainty among the sample with the top-end forecast all the way at plus 0.7 percent.

The S&P/Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. The composite indexes and the regional indexes are seen by the markets as measuring changes in existing home prices and are based on single-family home re-sales. The key composite series tracked are for the expanded 20-city composite indexes. The original series (still available) covered 10 cities. A national index is published quarterly. The indexes are based on single-family dwellings with two or more sales transactions. Condominiums and co-ops are excluded as is new construction. The data are compiled for S&P by Fiserv, Inc. The S&P/Case-Shiller Home Price Indices are published monthly on the last Tuesday of each month at 9:00 AM ET. The latest data are reported with a two-month lag. For example data released in January 2008 were for November 2007.

Home values affect much in the economy - especially the housing and consumer sectors. Periods of rising home values encourage new construction while periods of soft home prices can damp housing starts. Changes in home values play key roles in consumer spending and in consumer financial health. During the first half of this decade sharply rising home prices boosted how much home equity households held. In turn, this increased consumers' ability to spend, based on wealth effects and from being able to draw upon expanding home equity lines of credit.

With the onset of the credit crunch in mid-2007, weakness in home prices had the reverse impact on the economy. New housing construction has been impaired and consumers have not been able to draw on home equity lines of credit as in prior years. But an additional problem for consumers is that a decline in home values reduces the ability of a home owner to refinance. During the recent recession, this became a major problem for subprime mortgage borrowers as adjustable rate mortgages reached the end of the low "teaser rate" phase and ratcheted upward. Many subprime borrowers had bet on higher home values to lead to refinancing into an affordable fixed rate mortgage but with home equity values down, some lenders balked at refinancing subprime borrowers. But even though the economy technically moved into recovery, unemployment has remained high and depressed home prices have affected an increasing number of households.