The “Housing Candle” Brightens – a Lot

It’s been an article of economic faith that with any solid recovery, America ought to be seeing a major jump in home demand.  Not only should the housing prices see a 2.3% (or whatever price inflation is), but it should also seem to pressure to the update from a) all that quantitative easing, and then b) by all the Federal Reserve M2 printing festival which has bumped up M2 by 6.4% over the past year.

So, with this (unfortunately sobering) view, we flip over to this morning’s press release about the Case Shiller/S&P Housing Index which blew away just keeping up with inflation:

New York, October 29, 2013 – Data through August 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 that the 10-City and 20-City Composites increased 12.8% year-over-year. Compared to July 2013, the annual growth rates accelerated for both Composites and 14 cities.
On a monthly basis, the 10-City and 20-City Composites gained 1.3% in August. Las Vegas led the cities with an increase of 2.9%, its highest since August 2004. Detroit and Los Angeles followed with gains of 2.0%.


The chart above depicts the annual returns of the 10-City Composite and the 20-City Composite Home Price Indices. In August 2013, the 10- and 20-City Composites posted annual increases of 12.8%.

“The 10-City and 20-City Composites posted a 12.8% annual growth rate,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Both Composites showed their highest annual increases since February 2006. All 20 cities reported positive year-over-year returns. Thirteen cities posted double-digit annual gains. Las Vegas and California continue to impress with year-over-year increases of over 20%. Denver and Phoenix posted 20 consecutive annual increases; Miami and Minneapolis 19. Despite showing 26 consecutive annual gains, Detroit remains the only city below its January 2000 index level.

“The monthly percentage changes for the 20-City composite show the peak rate of gain in home prices was last April. Since then home prices continued to rise, but at a slower pace each month. This month 16 cities reported smaller gains in August compared to July. Recent increases in mortgage rates and fewer mortgage applications are two factors in these shifts.

“Denver and Dallas again set new highs. All the other cities remain below their peaks. Boston and Charlotte are the two MSAs closest to their peaks with only 8-9% left to go. Las Vegas is still down 47.1% from its peak level.”


As always, we’d remind you that there is no free lunch.  A good part of the increase in housing prices has been the entry of venture groups in to the rental home market.  This has tended to wash out the fact that regular buyers may still be having a tough go of things.

And, in addition, the date to date price comparison leaves out an important fact which is the loading of real estate closing costs, points, fees, origination costs, and on, and on….all of which have to be considered in terms of real life experience.

Still, if you sell your home yourself, and if you close with a lawyer, and all items are done cash, then yes, there has been a recovery.

And we half-expect that will goose the markets when they open this morning – and it may spill over into other inflation-adjusted items as well.

But that sets off a whole complicated series of ripples into the bond market and we’ll save that discussion for our  subscribers tomorrow.