Tuesday, November 27, 2012

Case-Shiller: Denver home prices increase at highest rate since November 2001

Case-Shiller released its home price index for September 2012 today. The home price index for the Denver area rose 0.4 percent percent from August to September, and rose 6.8 percent, year over year, from September 2011 to September 2012.  The year-over-year increase in September was the ninth year-over-year increase in a row for Denver, and was the largest increase since November 2001, when the year-over-year growth rate was 7.6 percent.  The first graph shows the index values since 2001. The index value is at the highest value seen since October 2007.

 According to S and P's press release, home prices nationwide continued to show some signs of growth:

"We are entering the seasonally weak part of the year.  The headline figures, which are not seasonally  adjusted, showed five cities with lower prices in September versus only one in August; in the seasonally  adjusted data the pattern was reversed: one city fell in September versus two in August. Despite the seasons,  housing continues to improve." 

"Phoenix continues to lead the recovery with a +20.4% annual growth rate. Atlanta has finally reversed 26  months of annual declines with a +0.1% annual rate as observed in September’s housing data. At the other  end of the spectrum, Chicago and New York were the only two cities to post annual declines of 1.5% and  2.3% respectively and were also down 0.6% and 0.1% month-over-month."
In year-over-year comparisons for September, two out of 20 cities showed year-over-year declines in the home price index.  New York showed the largest drop, with a decline of 2.3 percent, while the index in Chicago fell 1.5 percent. Denver was among the eighteen cities reporting increases, and had the sixth-largest increase of the twenty cities. Only Detroit, Phoenix, Miami, San Francisco 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 29 percent since it peaked in July 2006, but the Denver index is down only 4.8 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 September was positive for the fourth month in a row.

In short: Denver metro home prices have shown a stronger growth trend in recent months 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. We must go back to November 2001 to find a larger year-over-year growth rate.