S&P/Case-Shiller Home Price Indices Continue to Post Gains

Home prices continue to show gains. Data through February 2013, released Tuesday by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices showed average home prices increased 8.6 percent and 9.3 percent for the 10- and 20-City Composites in the 12 months ending in February 2013. The year-over-year metrics are generally those on which the markets focus. However, the 10- and 20-City Composites rose 0.4 percent and 0.3 percent, respectively, from January to February on a non seasonally-adjusted basis. On a seasonally-adjusted basis, both metrics showed price gains of 1.2 percent. All 20 cities covered by the indices posted year-over-year increases for at least two consecutive months. In 16 of the 20 cities, annual growth rates rose from the last month. Phoenix continued to stand out with an impressive year-over-year return of 23.0 percent. This may be due in large part to the activity of institutional investors, which have been buying distressed properties, renovating them, and either reselling them or converting them into rentals. Meanwhile, Atlanta and Dallas had the highest annual growth rates in the history of these indices since 1992 and 2001, respectively. This may be due to higher-than-average population growth that outpaces supply of existing homes. “Home prices continue to show solid increases across all 20 cities,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The 10- and 20-City Composites recorded their highest annual growth rates since May 2006; seasonally adjusted monthly data show all 20 cities saw higher prices for two months in a row – the last time that happened was in early 2005." He continued, “Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy. The 2013 first quarter GDP report shows that residential investment accelerated from the 2012 fourth quarter and made a positive contribution to growth. One open question is the mix of single family and apartments; housing starts data show a larger than usual share is apartments.” As of February 2013, average home prices across the United States are back to their autumn 2003 levels for both the 10-City and 20-City Composites. Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 29-30 percent. The recovery from the early 2012 lows is 8.7 percent and 9.3 percent, respectively. Now that home prices have continued to show gains over the past year, some people have worried that housing may be becoming a bit overheated. However, considering the level at which depressed prices reached at the bottom, price gains are to be expected, especially with low mortgage rates, courtesy of the Federal Reserve. Low inventory levels have magnified price gains. What is needed, however, to reduce the tight inventories is for new homebuilding to support increased household formation as the economy slowly recovers. And existing homeowners may sit on the sidelines, waiting for home prices to notch up further gains. Of course, increased job formation might be needed to coax would-be sellers to move to a different location in order to secure a new job. Even though eight MSAs posted monthly declines, all twenty cities showed increases when compared to their February 2012 levels. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, San Diego, San Francisco and Tampa were the ten MSAs that continued to report double-digit year-over-year gains. San Diego and Tampa recorded their first months of double-digit annual increases of just over 10.0 percent. Thus, housing appears to be on sounder footing, and continued price gains can help support consumer confidence. Whether that will be enough to spur substantially increased consumer spending in the face of stagnant wage gains remains to be seen.