Case-Shiller: Housing Made 'Great Strides' in 2014, but Rental Market a Problem

Today, the S&P/Case-Shiller Home Price Indices showed that the non-seasonally adjusted (NSA) December 10- and 20-City Composites rose 4.3 and 4.5 percent, respectively, on a year-over-year basis. The U.S. National Index rose 4.6 percent year-over-year. Today’s data were in line with Zillow’s forecasts, released last month.

On a seasonally adjusted (SA) monthly basis, the 10- and 20-City Composites were up 0.8 percent and 0.9 percent, respectively, from November to December. The National Index rose 0.7 percent month-over-month (SA). The table below shows how Zillow’s forecast compared with the actual numbers.

“The for-sale housing market made great strides toward 'normal' in 2014, as runaway appreciation cooled markedly and negative equity fell significantly. But anyone looking to see how far from truly 'normal' the market remains need look no further than the red-hot rental market, and its implications on the broader housing market going forward,” said Zillow Chief Economist Dr. Stan Humphries. “Many current renters could likely realize significant monthly savings by buying a home now and taking advantage of terrific affordability driven by low mortgage rates and home prices that remain below peak in most areas. But even while buying a home is essentially as affordable as it’s ever been, renting is less affordable than ever. Widespread and rapid growth in rents, combined with stagnant wages, are keeping many would-be buyers stuck in rental housing, writing ever-larger checks to their landlords instead of saving for a down payment. Today’s renters are tomorrow’s buyers, and the longer these would-be buyers stay on the sidelines, the longer full recovery will take. Real growth in wages and more rental supply will help ease the crunch, but don’t expect either overnight.”

Our forecasting model incorporates previous data points of the Case-Shiller series, as well as Zillow Home Value Index data and national foreclosure resales. To see how Zillow’s forecast of the November Case-Shiller indices compared, see our research brief from last month.