House Price Growth Is Accelerating

Standard and Poor’s reported that house prices rose in February. According to the most recent release, the S&P/Case-Shiller Home Price Index – 20 City Composite grew by 9.3% on a year-over-year not seasonally adjusted basis. Following 20 consecutive months of year-over-year declines, house prices registered their ninth consecutive year-over-year increase in February.

Year-over-year house price growth has been generally widespread. As Chart 1 illustrates, house prices have risen on a not seasonally adjusted twelve month basis in each city tracked by the 20-City Composite Index. House prices in Phoenix experienced the largest price increase. In February 2013, Phoenix house prices rose by 23.0%, the sixth consecutive month that house prices have experienced a year-over-year increase greater than 20.0%. Meanwhile, New York City, which rose by 1.9%, experienced the smallest year-over-year growth in not seasonally adjusted house prices among this group. However, as Chart 2 illustrates, while the upward trend in Phoenix and New York house prices during the boom years were roughly similar, house prices in Phoenix experienced a more severe downturn than house prices in New York. As a result, the higher growth rate recently seen in Phoenix house prices reflects their greater distance from normality.

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According to the April press release, the not seasonally adjusted 10- and 20-City Composite Indexes are “the leading measure of U.S. home prices”. Between January 2013 and February 2013, the rate of growth in the 20-City Composite Index increased from 8.1% to 9.3%. This acceleration partially reflects an increase in house prices between these two months. However, it largely reflects the house price declines that were still taking place one year ago. Between January 2013 and February 2013, house prices rose by 0.3% on a not seasonally adjusted basis. Meanwhile, between January 2012 and February 2012, house prices fell by 0.8%. As Chart 3 illustrates, the recent rise in house prices is being compared to a period of house price declines. As a result, the acceleration in year-over-year house prices may be overstating the strength of the recovery. However, Chart 4 illustrates that the seasonally adjusted house price index more clearly demonstrates that house prices are accelerating.

For full histories of the composites and 20 markets included in the Case-Shiller composites, click here cs.

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