Housing Prices–Still Firm

Just out from Case Shiller/S&P this morning:

New York, September 24, 2013 – Data through July 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed increases of 1.9% and 1.8% from June for the 10- and 20-City Composites. For at least four months in a row, all 20 cities showed monthly gains. Phoenix posted 22 consecutive months of positive returns. Although home prices in all the cities increased, 15 cities and both Composites saw these monthly rates decelerate in July versus June.

Over the last 12 months, prices rose 12.3% and 12.4% as measured by the 10- and 20-City Composites. The year-over-year returns show a brighter outlook with 13 cities posting improvement in July versus June values. Las Vegas increased the most from +24.9% in June to an impressive +27.5% in July.


The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Home Price Indices. In July 2013, the 10- and 20-City Composites posted annual increases of 12.3% and 12.4%, respectively.

“Home prices gains are holding their 12% annual rate of gain established by the two Composite indices in April,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The Southwest continues to lead the housing recovery. Las Vegas home prices are up 27.5% year-over-year; in California, San Francisco, Los Angeles and San Diego are up 24.8%, 20.8% and 20.4% respectively. However, all remain far below their peak levels.

“Since April 2013, all 20 cities are up month to month; however, the monthly rates of price gains have declined. More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked.

“Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing. The Fed’s announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favorable, impact on housing.”


As always, we look at this second chart as the most meaningful one.  While it seems to show that the home price index is up to levels last seen in 2004, the key thing to remember is that the S&P Data is (as it should be) only reflective of prices paid.  These are honest prices, but let’s be clear here, there are several key elements which don’t show up.

So what’s the “real deal” in returns to homeowners?  Something quite different, I’m afraid.  Remember that purchase involves the purchasers having to pay the seller’s selling expenses.  Since real estate commish generally runs around 7%, that 2003 number could be backed up a ways from the 20-city composite $162,49 thousand to something more like where the chart would have hit at around $151.11 thousand.

Then there’s inflation, which since 2003 has been fairly benign, but a real (after commish) $151.11 in 2003v would only buy a home worth $191.62 adjusted for inflation using Fed figures, which means with the 20-city at $162.49 the effects of deflation are still biting – hard.