The Case-Shiller data for May came out this morning and, based on this information and the June 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (June 2013) will show that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) increased 12.1 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) increased 12 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from May to June will be 1.1 percent for the 20-City Composite and 1.2 percent for 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 June will not be released until Tuesday, Aug. 27.
The Case-Shiller indices are giving an inflated sense of national home value appreciation because they are biased toward the large, coastal metros currently seeing such enormous home value gains, and because 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. We are seeing this issue especially in regions where home values fell drastically, producing a large number of foreclosures, which are now selling as normal sales after REOs (foreclosure resales) amidst extremely high home value appreciation. These areas include parts of California, Phoenix and Las Vegas. In contrast, the ZHVI does not include foreclosure resales and shows home values for June 2013 up 5.8 percent from year-ago levels. We expect home value appreciation to continue to moderate a bit in 2013, rising 5 percent between June 2013 and June 2014. Further details on our forecast of home values can be found here, and more on Zillow’s full June 2013 report can be found here.
To get some sense of where the Case-Shiller Composite-20 index will go over the coming years, the chart below combines 1) the historical trajectory of the index; 2) next month’s forecast given above based on current Zillow data; and 3) Zillow’s forecast for real estate appreciation over the next five years, based on the Zillow Home Price Expectations Survey, which includes input from more than 100 economists. These panelists actually predict the five-year path of the ZHVI, not the Case-Shiller index, but the future expectations are interesting nonetheless when applied to the current Case-Shiller index levels. The next Zillow Home Price Expectations Survey (2013 Q2) is coming out next week.
To forecast the Case-Shiller indices, we use the May Case-Shiller index level, as well as the June Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with June 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.