Case-Shiller House Price Indexes – Phoenix? Really?


The S&P/Case-Shiller (CS) monthly home price indexes for the 10 city and 20 city composites, and the component cities were released last week for August. The usual coverage of this release includes how far up or down the composites are compared to last month and last year, and how many of the component cities are up or down and how much. The numbers this month are encouraging. Both composite indexes are up 0.9% in August from July (not seasonally adjusted), the 10 city composite is up 1.3% and the 20 city composite is up 2.0% from August last year. Among the component cities, all but Seattle are up from last month, and 17 of 20 cities are up from last year. It is true that house prices in markets around the country are improving, but this narrow focus is not the best way to understand the level of improvement.

First of all, Seattle is fine. House prices are down 0.1% from July but up 3.4% from last year and after taking seasonal patterns into account it looks like prices have turned the corner after having trended downward until as recently as early this year.

A second point is that these indexes are not seasonally adjusted so it’s not surprising that they are all posting solid gains over the last several releases which average the spring and summer months, the height of the selling season. And it shouldn’t be a surprise going forward when the indexes weaken as the releases cover prices from the fall and winter months. It will be reflecting the highly seasonal nature of home prices, not widespread deterioration in housing market conditions.

And the 3 cities not showing annual growth, Atlanta, Chicago and New York, they are all posting bigger gains in year to date price growth than at this point last year.

The focus on these narrow metrics, monthly and annual changes in not seasonally adjusted house prices, led to the S&P Dow Jones press release announcing that Phoenix, with 18.8% annual growth, is the best performing city among the 20 cities followed. I would have picked Washington, DC. The annual growth was only 4.3%, but house prices in that market rose more, fell less, and have been recovering for 41 months compared to 11 months in Phoenix.

So it’s worth stepping back and thinking about what these indexes are supposed to be telling us. In the short term the monthly and annual comparisons may be telling us less than we think. Over the medium term the indexes are indicating which markets are putting together a sustainable recovery in house prices and by extension broader economic and housing market recoveries. Over the longer term these indexes show how prices have adjusted to balance the supply of and demand for housing given the underlying long term fundamentals of population and job growth in 20 local economies.

When interpreting these price indexes it’s important to have the right perspective.

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


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