by Calculated Risk on 7/31/2012 11:14:00 AM

Reporting on the Case-Shiller house price indexes can be confusing. On a month-over-month basis, prices were up. On a year-over-year basis, prices were down. Sometimes reporting focuses on the Seasonally Adjusted (SA) numbers; sometimes on the Not Seasonally Adjusted (NSA) numbers.

I look at all of these numbers.

Unfortunately, the seasonal adjustment is being impacted by distressed sales and is not as useful as in earlier periods. This is because the level of distressed sales remains fairly constant all year - and the level of conventional sales follows a normal seasonal pattern (high in the spring and summer, low in the winter). This has distorted the seasonal factor.

However, if we just look at the month-over-month change NSA, we have to remember there is a seasonal pattern for prices (strong in the spring and summer). So the 2.2% month-to-month NSA increase in May is partially seasonal.

If we just look at the year-over-year change (down 1.0% year-over-year in May), we have to remember that year-over-year changes lag turning points in prices.

However we look at the numbers, it appears house prices increased in May from April, and that the year-over-year change will probably turn positive in the June or July report.

Here is another update to a few graphs: Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1998 to 2001 levels depending on the index.

Nominal House Prices

Click on graph for larger image.

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through May) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2002 levels, and the Case-Shiller Composite 20 Index (SA) is back to August 2003 levels, and the CoreLogic index (NSA) is also back to August 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 1998 levels, the Composite 20 index is back to March 2001, and the CoreLogic index back to May 2000.

As we've discussed before, in real terms, all of the appreciation early in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q4 1998 levels, the Composite 20 index is back to May 2000 levels, and the CoreLogic index is back to June 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels.

All Current House Price Graphs