The Case-Shiller data for April 2014 came out this morning (research brief here), and based on this information and the May 2014 Zillow Home Value Index (ZHVI, released June 22), we predict that next month’s Case-Shiller data (May 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 by 9.6 percent and 9.7 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from April to May will be 0.4 percent for both the 20-City Composite Index and 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 May will not be released until Tuesday, July 29.
This month’s Case-Shiller release showed a marked slowdown in home price appreciation. We expect this slowdown to continue to be readily present in next month’s release both on a year-over-year basis, which we expect to be below 10 percent for May, as well as for monthly appreciation numbers. However, some cities still showed very strong monthly appreciation in April on a non-seasonally adjusted basis, such as Boston and San Francisco. The Zillow Home Value Index has been showing home value appreciation slowing for quite some time with May home value appreciation at 5.4 percent on a year-over-year basis and 0.1 percent on a monthly basis. 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, rising 2.9 percent between May 2014 and May 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 May 2014 report can be found here.
To forecast the Case-Shiller indices, we use the April Case-Shiller index level, as well as the May Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with May 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.