Case-Shiller Posts Best Y-O-Y Gain Since '06

NEW YORK CITY-US home prices, including single-family houses as well as apartments, posted the best year-over-year gain since 2006, according to data from S&P Dow Jones Indices, although a slowdown in the rate of increase suggests that it may have peaked. The S&P/Case-Shiller Home Price Indices for July, released Tuesday, showed Y-O-Y gains of 12.3% and 12.4%, respectively, as measured by the 10- and 20-City Composites.

The 10- and 20-city composites rose 1.9% and 1.8%, respectively, from the prior month. For at least four months in a row, all 20 cities have shown gains, led by Phoenix with 22 consecutive months of positive returns. The best month-over-month increase was posted by Chicago, where prices rose 3.5% from June.

“Home prices gains are holding their 12% annual rate of gain established by the two Composite indices in April,” says David M. Blitzer, who chairs the index committee at S&P Dow Jones Indices. The Southwest continues to lead the housing recovery, Blitzer notes, with prices in Las Vegas up 27.5% Y-O-Y. San Francisco, Los Angeles and San Diego are up 24.8%, 20.8% and 20.4% respectively. “However, all remain far below their peak levels,” he says.

Since this past April, all 20 cities in the Case-Shiller indices have gone up month to month. Yet in keeping with other recent reports, Blitzer says that the monthly rates of price gains have declined. “More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked,” he says.

A likely contributor to the slowdown in rising mortgage rates. Since this past May, Blitzer says, “applications for mortgages have dropped, suggesting that rising interest rates are affecting housing.” The Federal Reserve's announcement last week that QE3 bond buying will continue for the time being “may have only a limited, though favorable, impact on housing.”

And Patrick Newport, US economist at IHS Global Insights, notes that inventory shortages are to drive home price increases. “Construction of single-family homes has been depressed since late 2007, while the US population has increased by more than 12 million over that time,” he says.

Given that IHS estimates that underlying demand is running at a rate nearly twice that of housing completion, "the shortages are likely to get larger before getting smaller," Newport says. That means increases in the Case-Shiller indices are likely to continue for awhile yet, “even if they retreat some from the current pace.”

Meanwhile, the numbers on the rental side are likely to continue posting gains across the board. The USC Lusk Center reported on Tuesday that it's expecting two more years of apartment rent increases across Southern California. Check back on GlobeSt.com for more coverage of the USC Casden Multifamily Forecast.