Tuesday, August 6, 2013

Case-Shiller: Metro Denver home price index pack at peak levels

Case-Shiller released its home price index for May 2013 last week. The home price index for the Denver area rose 1.9 percent percent from April to May , and rose 9.7  percent, year over year, from May 2012 to May 2013.  The year-over-year increase in May was the seventeenth year-over-year increase in a row for Denver. May also marks a return to peak levels for the metro Denver index. The index peaked in July 2006 at 140.3, and the index value during May 2013 was 140.9. The first graph shows the recent increase to new peak levels:

 According to S & P's press release, home prices nationwide continued to show some signs of growth:
“Home prices continue to strengthen,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Two cities set new highs, surpassing their pre-crisis levels and five cities – Atlanta, Chicago, San Diego, San Francisco and Seattle – posted monthly gains of over three percent, also a first time event.  
“The Southwest and the West saw the strongest year-over-year gains as San Francisco home prices rose 24.5% followed by Las Vegas (+23.3%) and Phoenix (+20.6%). New York (+3.3%), Cleveland  (+3.4%) and Washington DC (+6.5%) were the weakest. Monthly numbers before seasonal  adjustment showed all 20 cities experienced rising prices. San Francisco (+4.3%), Chicago (+3.7%)  and Atlanta (+3.4%) were the leaders. However, two cities – Cleveland and Minneapolis were down slightly after seasonal adjustment. 
In year-over-year comparisons for May, all of the twenty cities measured reported increases.  The largest increases were in Las Vegas and San Francisco with year over year increases of 23.3 percent and 24.5 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 2006.

The 20-city composite is down 24 percent since it peaked in July 2006, but the Denve rindex is up 0.5 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 eleventh 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 2013 as the 20-city index YOY growth rate rose to 10.9 percent. The composite index growth rate has now outpaced the Denver metro rate for three months.

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.