by Calculated Risk on 7/28/2009 10:48:00 AM

Case-Shiller released the May house price index this morning, and most news reports focused on the small increase, not seasonally adjusted (NSA), from April to May. As I noted earlier, the seasonally adjusted (SA) data showed a small price decline from April to May.

Case-Shiller reported that prices fell at a 2.5% annual rate in May (SA).

However I think the seasonal factor might be insufficient during the current period.

The following graph shows the month-to-month change of the Case-Shiller index for both the NSA and SA data (annualized). Note that Case-Shiller uses a three-month moving average to smooth the data.

Click on graph for larger image in new window.

The Blue line is the NSA data. There is a clear seasonal pattern for house prices.

The red dashed line is the SA data as provided by Case-Shiller.

The seasonal adjustment appears pretty good in the '90s, but it appears insufficient now. I expect that the index will show steeper declines, especially starting in October and November.

The second graph compares the Case-Shiller Composite 10 SA index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts).

NOTE: I'm now using the Seasonally Adjusted (SA) composite 10 series.

The Stress Test scenarios use the Composite 10 index and start in December. Here are the numbers:

Edit correction: All data for May.

Case-Shiller Composite 10 Index, May: 151.13

Stress Test Baseline Scenario, May: 150.85

Stress Test More Adverse Scenario, May: 143.81

So far house prices are tracking the baseline scenario, but I believe the seasonal adjustment is insufficient and prices will decline faster in the Fall.