The Case-Shiller data for December 2013 came out this morning, and based on this information and the January 2014 Zillow Home Value Index (ZHVI, released February 19) we predict that next month’s Case-Shiller data (January 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 13.0 and 13.3 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from December to January will be 0.5 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 January will not be released until Tuesday, March 25.
Case-Shiller indices have shown very little slowing in monthly appreciation, as they continue to show an inflated picture of home prices, especially when considering year-over-year growth. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales 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.
In contrast, the ZHVI does not include foreclosure resales and shows home values for January 2014 up 6.3 percent from year-ago levels. More on the differences between a repeat sales index, including the Case-Shiller indices, and an imputed hedonic index like the ZHVI can be found here. We expect home value appreciation to continue to moderate in 2014, rising 3.4 percent between January 2014 and January 2015 — 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 January 2014 report can be found here.
To get some sense of where home values will go over the next five years, please refer to the Zillow Home Price Expectations Survey, which includes input from more than 100 economists. These panelists predict the five-year path of the ZHVI, not the Case-Shiller index. The latest Zillow Home Price Expectations Survey (2014 Q1), which came out on Feb. 12, can be found here.
To forecast the Case-Shiller indices, we use the December Case-Shiller index level, as well as the January Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with January 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.
