Confusing Home Price Trends

Home price indexes from S&P/Case-Shiller and the Federal Housing Finance Agency (FHFA) showed mixed and sometime conflicting results.  So what’s new?  The dual releases on May 25 rival baseball statistics in terms of the number of ways to look at home price trends.  There are monthly and quarterly indexes, national and aggregates for some metros, seasonally adjusted and not seasonally adjusted, purchase only and purchases plus refinances.

Some distinctions can be drawn from the definitional basis of each index but the bottom line is that home prices are fluttering around a range that leveled out in late summer 2009.  Home prices are better than a year ago but have fallen back some from their recent peaks.

 On a year-over-year basis, the S&P/C-S monthly 10- and 20-metro composite indexes and the quarterly US index all increased from 2 to 3 percent.  The peaks in all three unadjusted indexes were in September and some softness has occurred since that time.  The seasonally adjusted 10- metro composite increased from February to March but the 20-metro composite was virtually even.  The unadjusted metro indexes fell a half percentage point or less.  Half of the metro areas in the 20-metro composite did increase in March.

The FHFA index exhibited the opposite result with a year-over-year decline of 2.2 percent but monthly increases of 0.3 and 0.7 percent for seasonally adjusted and not seasonally adjusted indexes.  In six of nine census divisions, prices increased.

Some of the different results are because of different universes.  FHFA uses only sales with mortgages sold to the GSEs.  Hence, that index does not include cash sales, homes purchased with government insured or guaranteed mortgages (FHA, VA or Rural Housing Service) or loans ineligible for GSE purchase such as lower credit quality or higher mortgage amounts.  S&P/C-S covers all sales but not in all markets.  Since distressed sales and FHA/VA/RHS sales are included in S&P/C-S, it is likely to capture sales at the lower end of the price spectrum.  The lower end of the market is more sensitive to market variations and to the presence of the first time home buyer tax credit.  Increases through most of 2009 were the result of renewed investor demand from exceptional low prices and tax-credit-induced first time buyers.  Some of the urgency waned lately as the tax credit expired and then was extended and bargain house prices became less available. 

The FHFA index is based on mortgages that must qualify for the stricter GSE underwriting and fewer homes and buyers are qualified to pass through that system.  The FHFA index is more likely to include sales to repeat home owners and that segment of the market has been less robust than the first time and investor segments.  Some softer price changes are to be expected.

All these factors aside, S&P/C-S also provides three price-point indexes, bottom, middle and top third of the market, for 16 metro areas.  In seven metro areas the bottom third index improved better than the top third, in seven metro areas the top third index improved better than the bottom and in two there was no significant difference in segments.  Again, the basic conclusion is that prices are wandering around a bottom with unique conditions that send them above and below the zero change line.



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