The Case-Shiller data for January 2014 came out this morning, and based on this information and the February 2014 Zillow Home Value Index (ZHVI, released March 19) we predict that next month’s Case-Shiller data (February 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 12.8 and 13.1 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from January to February will be 0.6 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for February will not be released until Tuesday, April 29.
Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show a somewhat inflated picture of home prices. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous 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. When comparing the 20-city Case-Shiller year-over-year appreciation rate of 13.2 percent with the ZHVI 20-city rate of 12.1 percent, we see that the two are not as far off as they used to be. The graph below shows how they have compared in terms of annual growth over the last few years. Notice the volatility (high peaks and low troughs) in the Case-Shiller index, most likely brought on by their inclusion of foreclosure re-sales. Other effects that still impact the Case-Shiller indices are the flow weighting and the value weighting of the indices. More on the difference between Case-Shiller and ZHVI can be found here.
We expect home value appreciation to continue to moderate in 2014, rising 3 percent between February 2014 and February 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 February 2014 report can be found here.
To forecast the Case-Shiller indices, we use the January Case-Shiller index level, as well as the February Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with February foreclosure resale numbers, which Zillow also publishes more than a month prior to the release of the Case-Shiller index. Together, these data points enable us to reliably forecast the Case-Shiller 10-City and 20-City Composite indices.