Case-Shiller: Another Month of Strong Home Value Appreciation
The Case-Shiller data for March 2014 came out this morning (research brief here), 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.
To forecast the Case-Shiller indices, we use the March Case-Shiller index level, as well as the April Zillow Home Value Index (ZHVI), which is available more than a month in advance of the Case-Shiller index, paired with April 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.