US: S&P Corelogic Case-Shiller HPI

Tue Dec 26 08:00:00 CST 2017

Consensus Consensus Range Actual Previous Revised
20-city, SA - M/M 0.6% 0.6% to 0.8% 0.7% 0.5% 1.0%
20-city, NSA - M/M 0.5% 0.1% to 0.5% 0.2% 0.4%
20-city, NSA - Yr/Yr 6.3% 6.1% to 6.4% 6.4% 6.2%

Strength in home prices is one of the biggest stories of the 2017 economy, reflected in S&P Case-Shiller data where October's seasonally adjusted gain for the 20-city index is a sharp 0.7 percent. For a second month in a row, all 20 cities show monthly gains led in October by Las Vegas at 1.4 percent and San Francisco at 1.2 percent. Adding to the strength is a sizable 5 tenths upward revision to September which now stands at 1.0 percent which, however, is offset in part by a 2 tenths downward revision to August to a 0.2 percent gain.

But the gain for October and the upward revision to September are tied to seasonal adjustments as the unadjusted index rose only 0.2 percent in October with September unrevised at 0.4 percent. October, compared to other months, is relatively slow for the resale market which is compensated for by a large upward adjustment. Year-on-year rates (comparing October this year with October last year) are much less affected by seasonal adjustments and here underlying strength is the signal, at 6.4 percent for a 2 tenths gain and the best rate since July 2014.

Lack of supply of available homes on the market is a central factor helping home prices not to mention the general acceleration in housing demand that is clearly underway.

Market Consensus Before Announcement
Home-price appreciation has been one of the high points of the 2017 economy, underlined by September's Case-Shiller report which came in at the high end of expectations showing gains for all 20 cities. Econoday's consensus for October is calling for a very strong 0.6 percent increase in the 20-city adjusted index. The consensus for the unadjusted monthly index is plus 0.5 percent with the consensus for the year-on-year rate at 6.3 percent.

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.