S&P/Case-Shiller: Home Prices Rise Slightly Less Than Views in July

The S&P/Case-Shiller U.S. National Home Price Index surveying 20 major U.S. metropolitan areas rose 0.6% in July on a non-seasonally adjusted basis in the month of August. On a year-over-year basis, U.S. home prices rose 5% compared to the 5.1% increase economists polled by Reuters had expected.

“Prices of existing homes and housing overall are seeing strong growth and contributing to recent solid growth for the economy,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P/Case Shiller National Home Price Index has risen at a 4% or higher annual rate since September 2012, well ahead of inflation.”

The S&P/Case-Shiller U.S. National Home Price Index covers all nine U.S. census divisions, and posted a slightly higher year-over-year gain with a 4.7% annual increase in July 2015 juxtaposed a 4.5% increase in June 2015. However, the 10-City Composite was virtually unchanged from the month prior, gaining 4.5% on a year-over-year basis. The 20-City Composite posted a higher year-over-year gain of 5.0%.

“Most of the strength is focused on states west of the Mississippi,” Blitzer added. “Other positive indicators of current and expected future housing activity include gains in sales of new and existing housing and the National Association of Home Builders sentiment index. An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance.”

San Francisco, Denver and Dallas reported the highest year-over-year gains among the 20 cities with price increases of 10.4%, 10.3%, and 8.7%, respectively. Fourteen cities reported greater price increases in the year ending July 2015 over the year ending June 2015. San Francisco and Denver are the only cities with a double digit increase, and Phoenix had the longest streak of year-over-year increases. Phoenix reported an increase of 4.6% in July 2015, the eighth consecutive yearover-year increase. Boston posted a 4.3% annual increase, up from 3.2% in June 2015; this is the biggest jump in year-over-year gains this month.

While housing market data has been stronger this year than in the prior two, it is somewhat mixed and not at all clear if Blitzer’s assertions on the impact from a rate hike are correct. The National Association of Realtors said Monday its Pending Home Sales Index unexpectedly declined 1.4% to a seasonally-adjusted 109.4 in August, from a reading of 110.9 in July. While the index, which is based on contract signings, showed a modest increase in the West it was offset by declines in all other regions.

Even though most of the attention regarding the housing market surrounds pending, existing and new home sales data, as well as home price data reported by the S&P/Case-Shiller U.S. National Home Price Index, these more-optimistic reports have somewhat shadowed the concerning trend in mortgage risk. The composite National Mortgage Risk Index (NMRI) for Agency purchase loans clocked in at 12.14% in August, up 1% from a year earlier. The monthly composite index, which measures how mortgage loans originated month by month would perform under severely stressed conditions, has now gained on a year-over-year basis every month since January 2014.

“The common claim that first-time buyers face tight credit is simply not true,” said Stephen Oliner, codirector of AEI’s International Center on Housing Risk. “If you have a steady job and an ordinary credit score, you can buy a home with little money down.”

Agency loan originations continued to migrate from large banks to nonbanks in August, a shift that has accounted for most of the upward trend in the composite NMRI. Nonbank lending is substantially riskier than the large bank business it replaces.