Case-Shiller Indices Near Five-Year High

Case-Shiller Indices Near Five-Year High

07/30/2013 BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

Home prices rose to their highest levels in almost five years in May, increasing by a non-seasonally adjusted 2.5 percent, according to the Case-Shiller Home Price Indices released Tuesday.

The 20-city index was up 12.2 percent from a year earlier, and the companion 10-city index was up 11.8 percent. For the month, the 10-city index rose 2.5 percent and the 20-city index was up 2.4 percent. The two surveys have improved month-over-month and year-over-year for 12 consecutive months.

The 10-city index rose to its highest level since September 2008, and the 20-city index to its highest level since October 2008.

All 20 cities included in the survey improved both month-to-month and year-to-year.

The home values found in the Case-Shiller report continued to shrug off discounts in the sales of distressed properties. According to the National Association of Realtors (NAR), distressed properties—foreclosures and short sales—accounted for 18 percent of home sales transactions in May (11 percent foreclosures and seven percent short sales). Foreclosures, NAR said, sold for an average discount of 15 percent below market value, while short sales were discounted 12 percent.

The home values also improved despite higher mortgage rates, which could have both a positive and negative impact: Rising rates themselves might bring prices down as buyers look for affordable monthly payments, but they may also increase demand as buyers try to lock in rates before further increases. The increased demand against weak inventories would send prices up.

NAR reported the median price of an existing single-family home rose 5.9 percent in May, an annual gain of 12.6 percent. The monthly Case-Shiller Home Price Indices use the “repeat sales method” of index calculation, which includes data on properties that have sold at least twice in order to capture the appreciated value of each specific sales unit, according to the description of the index on the S&P website.

While good news for home sellers, the continued sharp increases—the indices have shown double-digit year-year increases for three months in a row—are likely to revive concerns of a growing housing bubble.

The Case Shiller indices have gone up for six straight months and 12 times in the last 14 months; each index dipped last October and November.

Overall, the 10-city index rose to 169.69—its highest level since September 2008, when it was 173.35—while the 20-city index improved to 156.14, the highest level since October 2008, when it was 158.09. The index values in fall 2008, though, were continuing to decline, while the indices reported Tuesday reflect a market on the rise.

Monthly increases were led by San Francisco, where prices rose 4.3 percent, marking the 15th straight month of price increases in that city. Prices rose more than 3 percent in May in four other cities: Chicago, up 3.7 percent; Atlanta, up 3.4 percent; and San Diego and Seattle, where prices rose 3.1 percent.

Prices have improved for 20 straight months in Phoenix, 15 straight months in Los Angeles, and 14 straight months in Las Vegas.

Year-over-year the price gains were led by San Francisco, where prices rose 24.5 percent since May 2012, followed by Las Vegas (up 23.2 percent), Phoenix (up 20.6 percent), and Atlanta (up 20.1 percent). Eight other cities—Detroit, Los Angeles, Miami, Minneapolis, Portland, San Diego, Seattle and Tampa—recorded double-digit year-year price gains.

Despite the May improvement, the 10-city index was down 25.0 percent from its June 2006 high of 226.29, and the 20-city index was off 24.4 percent from its July 2006 peak of 206.52.

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