US: S&P Corelogic Case-Shiller HPI

Tue Jul 25 08:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
20-city, SA - M/M 0.3% 0.0% to 0.7% 0.1% 0.3% -0.2%
20-city, NSA - M/M 0.8% 0.6% to 1.0% 0.8% 0.9% 1.0%
20-city, NSA - Yr/Yr 5.8% 5.8% to 6.0% 5.7% 5.7% 5.8%

Home prices in yesterday's existing home sales report were very strong, in contrast to today's reports from both Case-Shiller and FHFA where moderation is the theme. Case-Shiller's 20-city adjusted index inched only 0.1 percent higher in May vs Econoday expectations for 0.3 percent. Underlining recent softness is a sharp downward revision to April, now at minus 0.2 percent vs an initial plus 0.3 percent (in an offset, March is revised to plus 0.9 percent from plus 0.5 percent).

Emerging weakness is clear with 6 of 20 cities, for the second month in a row, posting contraction including sharp declines in May for New York, Boston and Chicago.

Unadjusted data show a 0.8 percent gain in May which, however, is a strong month for housing activity (hence the much lower reading for the adjusted figure). Year-on-year, Case-Shiller unadjusted prices came in at plus 5.7 percent which is 1 tenth below both expectations and April's rate. March and February saw this reading peak at 5.9 percent.

The FHFA house price index, also released this morning, rose only 0.4 percent which is also under expectations. Both FHFA and Case-Shiller have large sample sizes and rigorous methodology and are convincing offsets to the price indications in yesterday's existing home sales report.

Home prices have perhaps been the leading strength of the economy but have, however, been holding down affordability and pushing first-time buyers out of the market. Moderation in prices may be a negative for immediate household wealth but is probably a positive for the housing sector.

Market Consensus Before Announcement
Case-Shiller prices topped out early in the year and have been moderating since. The consensus for the 20-city adjusted index is only 0.3 percent in May, the same gain as April. May is a busy month for home sales and is reflected in the consensus for the unadjusted monthly index where the consensus is for a 0.9 percent gain. Year-on-year, the unadjusted index is expected to come in at 5.8 percent in what would be a 1 tenth gain.

The S&P Corelogic Case-Shiller home price index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S. Composite indexes and regional indexes measure changes in existing home prices and are based on single-family home re-sales. The expanded 20-city measure is the key series. 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 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 are for November. Note that S&P, citing large seasonal swings in the housing sector and the risk of adjustment inaccuracies, urges readers to track unadjusted data in this report.

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.