US: S&P Case-Shiller HPI

Tue Dec 29 08:00:00 CST 2015

Consensus Consensus Range Actual Previous
20-city, SA - M/M 0.6% 0.4% to 1.4% 0.9% 0.6%
20-city, NSA - M/M 5.4% 5.2% to 6.3% 0.1% 0.2%
20-city, NSA - Yr/Yr 5.5% 5.5%

Prices of existing homes showed a lot of life in October, up 0.9 percent for Case-Shiller's 20-city adjusted index which is at the high end of the Econoday consensus. Year-on-year, prices were up 5.5 percent for a second month.

San Francisco, Denver and Portland continue to report the highest year-over-year gains among the 20 cities with another month of double-digit price increases of 10.9 percent for all three. Twelve cities reported greater price increases in the year ending October 2015 versus the year ending September 2015. Phoenix had the longest streak of year-over-year increases, reporting a gain of 5.7 percent in October 2015, the eleventh consecutive increase in annual price gains.

Generally good economic conditions continue to support gains in home prices. Among the positive factors are consumers' expectations of low inflation and further economic growth as well as recent increases in residential construction including single family housing starts. Inventories of existing homes have averaged around a five month supply for the past year, a level that suggests a fairly tight market with limited supplies. Sales of new single family homes, despite recent increases in construction, remain mixed to soft compared to the trend in existing home sales.

Market Consensus Before Announcement
Prices of existing homes appear to be picking up a little steam, mostly the result of low supply as sales have been flat. The Econoday forecast is calling for a strong 0.6 percent gain for the Case-Shiller adjusted 20-city index with the year-on-year rate pegged at plus 5.4 percent. Note that the high estimate for the year-on-year rate, at 6.3 percent, would more than match FHFA's 6.1 percent rate released in the prior week.

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.