Tuesday, September 25, 2012

Case-Shiller: Denver home prices grow at highest rate since Janaury 2002

Case-Shiller released its home price index for July 2012 today. The home price index for the Denver area rose 1.3 percent percent from June to July, and rose 5.4 percent, year over year, from July 2011 to July 2012.  The year-over-year increase in July was the seventh year-over-year increase in a row for Denver, and was the largest increase since January 2002. The first graph shows the index values since 2001. The index value is at the highest value seen since November 2007.

 According to S&P's press release, home prices nationwide continued to show some signs of growth:
“Home prices increased again in July,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “All 20 cities and both Composites were up on the month for the third time in a row. Even better, 16 of the 20 cities and both Composites rose over the last year. Atlanta remains the weakest city but managed to
cut the annual loss to just under 10%.

“The news on home prices in this report confirm recent good news about housing. Single family housing starts are well ahead of last year’s pace, existing home sales are up, the inventory of homes for sale is down and foreclosure activity is slowing. All in all, we are more optimistic about housing. Upbeat trends continue. For the third time in a row, all 20 cities and both Composites had monthly gains.
In year-over-year comparisons for July, four out of 20 cities showed year-over-year declines in the home price index.  Atlanta showed the largest drop by far, with a decline of 9.9 percent, while the index in New York fell 2.6 percent. Denver was among the sixteen cities reporting increases, and had the fourth-largest increase of the twenty cities. Only Detroit, Phoenix, and Minneapolis reported larger year-over-year increases in the home price index than Denver.

The second chart shows trends in the Case-Shiller index for the Denver area and for the 20-city composite index. It is clear that Denver did not experience the kind of price bubble that occurred in many other metropolitan areas, and consequently, the index has not fallen nearly as far in Denver compared to the larger composite.

The 20-city composite is down 30 percent since it peaked in July 2006, but the Denver index is down only 5.3 percent from its August 2006 peak.

The third chart compares year-over-year changes in the Denver area index and in the 20-city composite. Overall, the index has been less volatile in Denver than has been the case for the 20-city composite. The year-over-year change in the 20-city composite during June turned positive for the second time in 22 months with an increase of 1.2 percent while Denver reported an increase of 5.4 percent.

In short: Denver metro home prices have shown a much stronger growth trend than the 20-city composite.

The last chart provides a closer look at year-over-year changes in the Denver index. The index went negative as the economy began to slow in 2007 and remained negative until this year with the exception of the period in which the homebuyer tax credit pushed up prices temporarily. Recent home price growth is accelerating as inventory declines, household formation continues, and rental housing continues to become more expensive.