Zillow Predicts Another 12% Annual Increase in Case-Shiller Indices for May

By angelag on 25 Jun 2013

The Case-Shiller data for April came out this morning and, based on this information and the May 2013 Zillow Home Value Index (released last week), we predict that next month’s Case-Shiller data (May 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 12.2 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from April to May will be 1.3 percent for the 20-City Composite and 1.6 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 May will not be released until Tuesday, July 30.

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. In contrast, the ZHVI does not include foreclosure resales and shows home values for May 2013 up 5.4 percent from year-ago levels. We expect home value appreciation to continue to moderate in 2013, rising only 4.1 percent between May 2013 and May 2014. Further details on our forecast of home values can be found here, and more on Zillow’s full May 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.

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.