Monday, June 3, 2013

Case-Shiller: Home price growth rates at 1999 levels

Case-Shiller released its home price index for March 2013 last week. The home price index for the Denver area rose 1.4 percent percent from February to March, and rose 9.8  percent, year over year, from March 2012 to March 2013.  The year-over-year increase in March was the fifteenth year-over-year increase in a row for Denver, and was the largest increase since 2001.

 According to S & P's press release, home prices nationwide continued to show some signs of growth:
“Home prices continued to climb,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow  Jones Indices. “Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20  saw prices rise at double-digit annual growth. The National Index and the 10- and 20-City Composites posted  their highest annual returns since 2006.  
“Phoenix again had the largest annual increase at 22.5% followed by San Francisco with 22.2% and Las Vegas  with 20.6%. Miami and Tampa, the eastern end of the Sunbelt, were softer with annual gains of 10.7% and  11.8%. The weakest annual price gains were seen in New York (+2.6%), Cleveland (+4.8%) and Boston  (+6.7%); even these numbers are quite substantial."
In year-over-year comparisons for March, all of the twenty cities measured reported increases.  The largest increases were in Phoenix and San Francisco with year over year increases of 22.5 percent and 22.2 percent, respectively.

The first 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 metro Denver index value is at the highest value seen since 2007.

The 20-city composite is down 28 percent since it peaked in July 2006, but the Denver index is down only 3.2 percent from its August 2006 peak.

The second 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 December was positive for the ninth month in a row.

After many months of higher growth rates in Denver than in the 20-city index, the Denver index was surpassed in March as the 20-city index YOY growth rate rose to 10.9 percent.

For the third graph, I've extended the time frame back to 1997, and you can see that for metro Denver, the growth rate back in the dot-com boom days of the late 90s was quite high, even reaching to nearly 15 percent. 

The index went negative as the economy began to slow in 2007 and remained negative until 2012 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, mortgage rates hit historic lows, household formation continues, and rental housing continues to become more expensive.