Home prices continue to rise faster than
the rate of inflation and the increase speeded up again in September. The S&P/Case-Shiller U.S. National Home
Price Index (HPI), recorded a slightly higher year-over-year gain in September,
up 4.9 percent compared to the 4.6 percent annual increase posted across the nine
U.S. census divisions in August.
The 10-City Composite increased 5.0
percent over the 12 previous months in September compared to 4.7 percent change
in August while the 20-City Composite's year-over-year gain was 5.5 percent
versus 5.1 percent. After adjusting for the Consumer Price Index (CPI) core
rate of inflation, the National HPI rose 3 percent from September 2014 to
On a month-over-month basis the National
HPI gained 0.2 percent from August on a non-seasonally adjusted basis and 0.8
percent adjusted. The 10-City Composite
and 20-City Composite indices both reported gains of 0.2 percent unadjusted for
the month and 0.6 percent when seasonally adjusted.
The 20-City Composite beat analysts'
consensus expectations for both the month and the year. Bloomberg reported an estimate of 0.3 percent
on a seasonally adjusted basis month-over-month and 5.3 percent for the annual
Fifteen of 20 cities tracked by
Case-Shiller reported increases in September before seasonal adjustment. After seasonal adjustment, 19 increased for
The highest annual gains were reported by
San Francisco at 11.2 percent, Denver at 10.9 percent and Portland, Oregon at
10.1 percent. Price increases escalated on
an annual basis compared to August in 17 of the Composite cities with Phoenix
having the longest continuous streak of such gains, 10 months.
David M. Blitzer, Managing Director and
Chairman of the Index Committee at S&P Dow Jones Indices said, "Home prices
and housing continue to show strength with home prices rising at more than
double the rate of inflation. The
general economy appeared to slow slightly earlier in the fall, but is now
showing renewed strength. With unemployment at 5 percent and hints of higher
inflation in the CPI, most analysts expect the Federal Reserve to raise its Fed
Funds target range to 25 to 50 basis points, the first increase since 2006.
While this will make news, it is not likely to push mortgage rates far above
the recent level of 4 percent on 30 year conventional loans. In the last year,
mortgage rates have moved in a narrow range as home prices have risen; it will
take much more from the Fed to slow home price gains.
"The strength seen in home prices since
the bottom in 2012 led some to wonder if we're entering a new bubble," Blitzer
continued. "While bubbles can only be
reliably identified in hindsight, one useful measure compares the increase in
home prices to the change in rents. The first chart below shows the
year-over-year change in the S&P/Case-Shiller National Home Price Index and
the year-over- year change in the rent of primary residence series reported as
part of the Consumer Price Index. Home prices are far more volatile. At the
same time, the most recent data do not show a huge spread between the two series."
"Another question raised by consistent real
(or inflation adjusted) home price increases is whether the prices are squeezing
people out of the market," Blitzer said.
"One measure of affordability is based on median income, median home price,
and mortgage rate; a value of 100 on the chart below indicates a home buyer at the
median income can afford the median price home. As shown on the chart, affordability
is more than adequate for a median income buyer now but has slipped a bit recently."
As of September 2015, average home prices for
the metro areas within the 10-City and 20-City Composites are back to their winter
2007 levels. Measured from their June/July 2006 peaks, the peak-to-current decline
for both Composites is approximately 11-13 percent and they the 10-City has
recovered by 35.1 percent since its March 2012 low and the 20-City by 36.4
S&P/Case-Shiller Home Price
Indices are constructed to accurately track the price path of typical
single-family home pairs for thousands of individual houses from the available
universe of arms-length sales data. The S&P/Case-Shiller National U.S. Home
Price Index tracks the value of single-family housing within the United States.
The indices have a base value of 100 in January 2000; thus, for example, a
current index value of 150 translates to a 50% appreciation rate since January
2000 for a typical home located within the subject market.
The 10-City Composite currently has an
index level of 197.84 and the 20-City a value of 182.91. The National Index is at 175.51. Detroit is the city with the lowest index at
103.81 and Los Angeles has the highest at 238.91.