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Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation

Summary:
With yesterday's release of the September S&P/Case-Shiller Home Price we learned that seasonally adjusted home prices for the benchmark 20-city index were down fractionally month over month at -0.1%. However, the seasonlly adjusted year-over-year change has hovered between 1.9% and 2.3% for nine months. The adjacent column chart illustrates the month-over-month change in the seasonally adjusted 20-city index, which tends to be the most closely watched of the Case-Shiller series. It was flat from the previous month. The nonseasonally adjusted index was up 5.5% year-over-year. Investing.com had forecast a 0.3% MoM seasonally adjusted increase and 5.1% YoY nonseasonally adjusted for the 20-city series. Here is an excerpt of the analysis from today's Standard & Poor's press release. "Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at 5% and hints of higher inflation in the CPI, most analysts expect the Federal Reserve to raise its Fed Funds target range to 25 to 50 basis points, the first increase since 2006.

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With yesterday's release of the September S&P/Case-Shiller Home Price we learned that seasonally adjusted home prices for the benchmark 20-city index were down fractionally month over month at -0.1%. However, the seasonlly adjusted year-over-year change has hovered between 1.9% and 2.3% for nine months.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation The adjacent column chart illustrates the month-over-month change in the seasonally adjusted 20-city index, which tends to be the most closely watched of the Case-Shiller series. It was flat from the previous month. The nonseasonally adjusted index was up 5.5% year-over-year.

Investing.com had forecast a 0.3% MoM seasonally adjusted increase and 5.1% YoY nonseasonally adjusted for the 20-city series.

Here is an excerpt of the analysis from today's Standard & Poor's press release.

"Home prices and housing continue to show strength with home prices rising at more than double the rate of inflation," says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. "The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at 5% and hints of higher inflation in the CPI, most analysts expect the Federal Reserve to raise its Fed Funds target range to 25 to 50 basis points, the first increase since 2006. While this will make news, it is not likely to push mortgage rates far above the recent level of 4% on 30 year conventional loans. In the last year, mortgage rates have moved in a narrow range as home prices have risen; it will take much more from the Fed to slow home price gains.

"The strength seen in home prices since the bottom in 2012 led some to wonder if we’re entering a new bubble. While bubbles can only be reliably identified in hindsight, one useful measure compares the increase in home prices to the change in rents. The first chart below shows the year-over-year change in the S&P/Case-Shiller National Home Price Index and the year-overyear change in the rent of primary residence series reported as part of the Consumer Price Index. Home prices are far more volatile. At the same time, the most recent data do not show a huge spread between the two series." [Link to source]

The chart below is an overlay of the Case-Shiller 10- and 20-City Composite Indexes along with the national index since 1987, the first year that the 10-City Composite was tracked. Note that the 20-City, which is probably the most closely watched of the three, dates from 2000. We've used the seasonally adjusted data for this illustration.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation

For an understanding of the home price data over longer time frames, we think a real, inflation-adjusted visualization of the data is an absolute necessity. Here is the same chart as the one above adjusted for inflation using a subcomponent of Bureau of Labor Statistics' Consumer Price Index, the owners' equivalent rent of residences, as the deflator. Among other things, the real version gives a better sense of the dynamics of the real estate bubble that preceded the last recession.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation

The next chart shows the year-over-year Case-Shiller series, again using the seasonally adjusted data.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation

Here is the same year-over-year overlay adjusted for inflation with the Consumer Price Index owners' equivalent rent of residences.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation

For a long-term perspective on home prices, here is a look at the seasonally and inflation-adjusted Case-Shiller price index from 1953, the first year that monthly data is available. Because the CPI owners' equivalent rent of residences didn't start until 1983, we've used the broader seasonally adjusted Consumer Price Index.

Home Prices Rose 4.9% Year-over-Year in September; Rising More Than Double Inflation


For additional perspectives on residential real estate, here is the complete list of our monthly updates:

Jill Mislinski
Jill has been working with Advisor Perspectives since 2012 and is currently their Research Director as part of Doug Short’s team. Her background is in mathematics and physics and she holds a Master of Science in Physical Science with a concentration in physics and astronomy from the University of Chicago.

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