Wednesday, May 28, 2014

Zillow: Case-Shiller House Price Index expected to slow slightly year-over-year in April

by Calculated Risk on 5/28/2014 10:00:00 AM

The Case-Shiller house price indexes for March were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.  

It looks like the year-over-year change for Case-Shiller will continue to slow. From Zillow: Case-Shiller: Another Month of Strong Home Value Appreciation

The Case-Shiller data for March 2014 came out [yesterday], and based on this information and the April 2014 Zillow Home Value Index (ZHVI, released May 20), we predict that next month’s Case-Shiller data (April 2014) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 11.8 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from March to April will be 1.2 percent for the 20-City Composite Index and 1.1 percent for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for April will not be released until Tuesday, June 24.

Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show a somewhat inflated picture of home prices. On a year-over-year basis the indices are slowing down ever so slightly, but we have not seen the same signs of a slowdown in the Case-Shiller data that we have seen in other data. The Case-Shiller indices are biased toward the large, coastal metros currently still seeing substantial home value gains, and they include foreclosure re-sales. The inclusion of foreclosure re-sales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed. However, as the prevalence of foreclosures and foreclosure re-sales is declining, so is the impact they have on the Case-Shiller indices. Moreover, the fact that Case-Shiller uses a three-month average is strongly diluting the impact of the most recent numbers and with that the showing of a slowdown. More on the difference between Case-Shiller and ZHVI can be found here.

We expect home value appreciation to continue to moderate in 2014 (even if we can’t yet see it in the Case-Shiller data), rising 2.2 percent between April 2014 and April 2015, nationally — a rate much more in line with historic appreciation rates. The main drivers of this moderation include rising mortgage rates and less investor participation – leading to decreased demand – and increasing for-sale inventory supply. Further details on our forecast of home values can be found here, and more on Zillow’s full April 2014 report can be found here.
So the Case-Shiller index will probably show another strong year-over-year gain in April, but a little lower than in March (12.4% year-over-year).

Zillow March 2014 Forecast for Case-Shiller Index
 Case Shiller Composite 10Case Shiller Composite 20
Case Shiller
(year ago)
(last month)
Zillow ForecastYoY11.8%11.8%11.8%11.8%
Zillow Forecasts1 184.9188.3170.2173.4
Current Post Bubble Low 146.45149.86134.07137.13
Date of Post Bubble Low Mar-12Feb-12Mar-12Jan-12
Above Post Bubble Low 26.2%25.7%26.9%26.5%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts