by Calculated Risk on 2/25/2014 06:45:00 PM

The Case-Shiller house price indexes for December were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

It looks like the year-over-year change for Case-Shiller is still strong, but slowing. In January 2013, the Composite 20 seasonally adjusted index was up 0.8% (a 10% annual rate), and is forecast to be up "only" 0.5% in January 2014 (a 6% annual rate).

From Zillow: Case-Shiller Indices Show Little Moderation

The Case-Shiller data for December 2013 came out this morning, and based on this information and the January 2014 Zillow Home Value Index (ZHVI, released February 19) we predict that next month’s Case-Shiller data (January 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.0 and 13.3 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from December to January will be 0.5 percent for both the 20-City Composite and 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 January will not be released until Tuesday, March 25.

Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show an inflated picture of home prices, especially when considering year-over-year growth. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and 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.

In contrast, the ZHVI does not include foreclosure resales and shows home values for January 2014 up 6.3 percent from year-ago levels. More on the differences between a repeat sales index, including the Case-Shiller indices, and an imputed hedonic index like the ZHVI can be found here. We expect home value appreciation to continue to moderate in 2014, rising 3.4 percent between January 2014 and January 2015 — a rate much more in line with historic appreciation rates. The main drivers of this moderation include rising mortgage rates and less investor participation – leading to decreased demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full January 2014 report can be found here.

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

Zillow December Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Jan 2013	158.61	160.50	146.15	148.05
Case-Shiller (last month)	Dec 2013	180.13	180.17	165.69	166.70
Zillow Forecast	YoY	13.3%	13.3%	13.0%	13.0%
	MoM	-0.2%	0.5%	-0.3%	0.5%
Zillow Forecasts1		179.7	182.0	165.2	167.4
Current Post Bubble Low		146.45	149.69	134.07	136.92
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		22.7%	21.6%	23.2%	22.3%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 2/25/2014 05:55:00 PM

From housing economist Tom Lawler:

Toll Brothers, the self-proclaimed “nation’s leading builder of luxury homes,” reported that net home orders in the quarter ended January 31, 2014 totaled 916, down 5.9% from the comparable quarter of 2013. Net home orders for “traditional” homes (that is, excluding its “city-living” segment) totaled 865 last quarter, down 8.1% from a year earlier. The company’s sales cancellation rate, expressed as a % of gross orders, was 7.0% last quarter, up from 6.2% a year ago. Home deliveries last quarter totaled 928, up 24.4% from the comparable quarter of 2013, at an average sales price $694,000, up 22.0% from a year ago. The company’s order backlog at the end of January was 3,667, up 31.2% from last January, at an average order price of $733,000, up 10.2% from a year ago.

Here are a few excerpts from the conference call.

“The freezing, snowy weather of the past two months has impacted our business in the Northeast, Mid-Atlantic and Midwest markets, where about 50% of our selling communities are located. While it is still too early to draw conclusions about the Spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics.” “Encouragingly, our average price per home has risen dramatically, representing a combination of price increases and mix shift. Both components have helped boost our gross and operating margin.”

For “traditional” homes, net orders last quarter were down YY in the “North,” up 0.4% in the “Mid-Atlantic” up 9.4% in the “South” (which includes Texas), and off 17.4% in the “West.” The decline in the West was not weather related, but rather reflected potential buyers’ response to Toll’s unusually aggressive price increases in the region, especially California. The average net order price in the West last quarter was $944,000, up 27.9% from a year earlier.

Based on results so far, Toll lowered slightly its wide “guidance” on expected home deliveries for its full fiscal year (ending October 31, 2014) to “between 5,100 and 5,850 homes” from “between 5,100 and 6,100 homes” given in its December 10, 2013 earnings press release. Toll delivered 4,184 homes in the fiscal year ended October 31, 2013.

Toll said that at the end of January it owned or controlled 51,235 lots, up 17.3% from last January and up 29.2% from the end of January 2012.

by Calculated Risk on 2/25/2014 03:55:00 PM

There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced in recent years.

Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a larger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter.


Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both through December).   The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst.

Case-Shiller NSA and CoreLogic both recently turned slightly negative month-to-month, but this is just seasonal.

The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.

Note: I was one of several people to question this change in the seasonal factor - and this led to S&P Case-Shiller reporting the NSA numbers.

It appears the seasonal factor has stopped increasing, and I expect that over the next several years - as the percent of distressed sales decline - the seasonal factors will slowly move back towards the previous levels. 

by Calculated Risk on 2/25/2014 11:40:00 AM

I've been hearing reports of a slowdown in house price increases (more than the usual seasonal slowdown), and perhaps this slowdown in price increases is finally showing up in the Case-Shiller index.  This makes sense since inventory is starting to increase.

According to Trulia chief economist Jed Kolko, asking price increases have slowed down recently, and Kolko expects that price slowdown will "hit Feb sales prices and get reported in April index releases".

It might take a few months, but I also expect to see smaller year-over-year price increases going forward.

Note: There was a small Not Seasonally Adjusted decline in December, but that decline was smaller than usual - and prices are still increasing fairly quickly on a seasonally adjusted basis.


I also think it is important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (about 38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).


Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 13.4% year-over-year in December

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q4 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through December) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2004 levels (and also back up to Q3 2008), and the Case-Shiller Composite 20 Index (SA) is back to July 2004 levels, and the CoreLogic index (NSA) is back to September 2004.

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 Q2 2001 levels, the Composite 20 index is back to May 2002, and the CoreLogic index back to May 2002.

In real terms, house prices are back to early '00s levels.

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 Q2 2001 levels, the Composite 20 index is back to Sept 2002 levels, and the CoreLogic index is back to September 2002.

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

Nominal Prices: Cities relative to Jan 2000


The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 44% above January 2000 (44% nominal gain in 14 years).

These are nominal prices, and as I noted above real prices (adjusted for inflation) are up about 38% since January 2000 - so the increase in Phoenix from January 2000 until now is just a little above the change in overall prices due to inflation.

Two cities - Denver (up 46% since Jan 2000) and Dallas (up 33% since Jan 2000) - are above the bubble highs (no other Case-Shiller Comp 20 city is very close).    Denver is up slightly more than inflation over that period, and Dallas slightly less.  Detroit prices are still below the January 2000 level.

by Calculated Risk on 2/25/2014 10:04:00 AM

From the Richmond Fed: Manufacturing Sector Softened; Shipments and New Orders Declined

Manufacturing in the Fifth District slowed, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders declined. Hiring flattened, while the average workweek shortened and average wage growth rose. ...

The composite index of manufacturing dipped to a reading of −6 following last month's reading of 12. The index for shipments fell 20 points, ending at −6, and the index for new orders dropped 23 points, finishing at a reading of −9. The index for the number of employees shed six points, settling at 0. As a result of bad weather a few survey participants reported that manufacturing facilities experienced downtime in February, with some reductions in shipments.

Manufacturing employment eased off this month, settling at an index of 0 and the average workweek shortened. The index shed 13 points moving to a reading of −5. The index for average wages grew only slightly faster; that gauge edged up to 14 from the previous reading of 11.

Another weak manufacturing survey for February.