by Calculated Risk on 7/30/2013 06:06:00 PM

The Case-Shiller house price indexes for May were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Zillow makes a strong argument that the Case-Shiller index is currently overstating national house price appreciation.

Zillow Predicts Another 12% Annual Increase in Case-Shiller Indices for June

The Case-Shiller data for May came out this morning and, based on this information and the June 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (June 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 12.1 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 12 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be 1.1 percent for the 20-City Composite and 1.2 percent for the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for June will not be released until Tuesday, Aug. 27.
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The Case-Shiller indices are giving an inflated sense of national home value appreciation because they are biased toward the large, coastal metros currently seeing such enormous home value gains, and because they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. We are seeing this issue especially in regions where home graphvalues fell drastically, producing a large number of foreclosures, which are now selling as normal sales after REOs (foreclosure resales) amidst extremely high home value appreciation. These areas include parts of California, Phoenix and Las Vegas. In contrast, the ZHVI does not include foreclosure resales and shows home values for June 2013 up 5.8 percent from year-ago levels. We expect home value appreciation to continue to moderate a bit in 2013, rising 5 percent between June 2013 and June 2014. Further details on our forecast of home values can be found here, and more on Zillow’s full June 2013 report can be found here.
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To forecast the Case-Shiller indices, we use the May Case-Shiller index level, as well as the June Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with June foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.

The following table shows the Zillow forecast for the June Case-Shiller index.

Zillow June Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	June 2012	154.94	154.07	142.37	141.37
Case-Shiller (last month)	May 2013	169.69	170.62	156.14	157.01
Zillow Forecast	YoY	12.0%	12.0%	12.1%	12.1%
	MoM	2.2%	1.2%	2.3%	1.1%
Zillow Forecasts1		173.5	172.6	159.7	158.6
Current Post Bubble Low		146.46	149.61	134.07	136.85
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		18.4%	15.4%	19.1%	15.9%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts