Case-Shiller, FHFA Home Price Measures

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s second update discusses the Case-Shiller and FHFA home price measures.

• Price data from both Case-Shiller and FHFA released today continue to show that home prices are advancing at an extremely high pace. Case-Shiller reported that year-over-year increases in the 10-and 20-City composite indexes were 11.6 and 12.1 percent respectively for April 2013. Separately, the FHFA reported that its price index showed an increase of 7.4 percent over April 2012. NAR median price data are available for April and May at this point in time. NAR April data showed a 10.4 percent year over year increase, while May NAR data showed that prices rose 15.4 percent from a year ago.
• Both Case-Shiller and FHFA employ a weighted repeat sales technique which computes price change based on repeat sales of the same property. Case-Shiller uses property records and because of the difficulty in acquiring data, when Case Shiller reports April data, this is actually based on new observations of sales that occurred in February, March, and April. FHFA uses government mortgage databases to estimate repeat sales and due to the larger database, FHFA’s April data relies on new transactions in April. In contrast, NAR reports the median price of a home based on MLS reported transactions in the reporting month.
• As you can see in the chart below, NAR data is a fairly reliable indicator of the trend in other home price series. Based on the median price growth reported in May, expect continued growth in FHFA and Case-Shiller indexes in the next few months.
• Looking at prices on a more local level, FHFA does a breakout for Census divisions which shows that prices in the Pacific division (Hawaii, Alaska, Washington, Oregon, California) saw the biggest jump, rising 17.1 percent from April one year ago. Home prices in the Middle Atlantic division (New York, New Jersey, Pennsylvania) had the smallest gain of 2.9 percent.
• Case-Shiller data is available at the metro level and shows that metros in the Pacific division generally had the highest year-over-year price gains. The biggest year-over-year gains were in San Francisco, CA, which showed a 23.9 percent increase over April. Other top cities showing at least 20 percent growth in home prices in the last year include Las Vegas, Phoenix, and Atlanta. On the low end, New York City saw only a 3.2 percent year-over-year gain and was followed by Cleveland where prices rose 4.8 percent from the previous year. These two metros were the only metros showing a gain of less than 5 percent.
• Are these price increases too much? Can these price increases continue? Clearly, prices cannot continue to increase at a rate that is substantially beyond the growth of incomes. However, it is important to note that even after this sharp upward correction, prices have still not reached their previous highs. FHFA estimates that the index is still 11.7 percent below its April 2007 peak and roughly in line with January 2005 prices. The Case-Shiller index is still more than 25 percent below its summer 2006 peak and is currently at a level that was consistent with early 2004 data. NAR’s April data was about 14 percent below the April 2006 peak, and May was about 9 percent below the May 2006 peak.