US: S&P Corelogic Case-Shiller HPI

Tue Mar 27 08:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
20-city, SA - M/M 0.7% 0.6% to 0.7% 0.8% 0.6% 0.7%
20-city, NSA - Yr/Yr 6.2% 5.4% to 6.3% 6.4% 6.3%
20-city, NSA - M/M 0.3% 0.2%

Home prices are bubbling a bit. First it was 3-1/2 year highs in last week's FHFA data and today Case-Shiller beats the top estimate with a very strong 0.8 percent monthly gain for a 6.4 percent year-on-year rate that matches November last year for another 3-1/2 year high.

If there are bubbles forming it's in the west. Seattle is out front at a 12.9 percent year-on-year gain with Las Vegas at 11.1 percent followed by San Francisco at 10.2 percent. The weakest price growth is in Chicago and Washington DC, both at 2.4 percent. Turning back to the west, all the cities are posting strong rates: LA and Denver at 7.6 percent, San Diego at 7.4 percent, and Portland at 7.1 percent.

Last week's FHFA data, which are broken out by census regions, were led by the mountain and pacific states. Jerome Powell, at last week's FOMC press conference, downplayed home prices as a risk to economic stability, and prices across most of the nation are growing at a healthy and sustainable rate -- with perhaps the west however an exception.

Market Consensus Before Announcement
Continuing strength is the call for Case-Shiller home prices where Econoday's consensus gain for the 20-city adjusted monthly rate is 0.7 percent with the year-on-year rate seen at 6.2 percent. Cities out West are leading the price gains and are perhaps raising questions over bubbles in the region. High prices are in part reflecting low supply of available homes on the market.

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.