Home Price Gains Pick Up the Pace

NEW YORK CITY—The latest S&P/Case-Shiller numbers broadly reflected economists' expectations of a slight uptick in US home prices. Data released Tuesday by S&P Dow Jones Indices showed the biggest gain in the past year, with improvements seen in annual housing price increases for August compared to July across all three S&P/Case-Shiller indices. Not surprisingly, Western cities registered the highest gains.

San Francisco and Denver were the only cities among the 20 tracked by S&P Dow Jones to record double-digit year-over-year increases, each with 10.7%. Portland, OR, which came in third on a Y-O-Y basis, posted the highest monthly gain, with prices up 1.1% in August compared to July. These three cities were among the 15 that recorded higher annual increases in June compared to the previous month.

The S&P/Case-Shiller US National Home Price Index, measuring all nine US census divisions, showed a 4.7% annual increase in August compared to 4.6% in July. The 10-City Composite increased 4.7% in the year to August compared to 4.5% in the prior month, while the 20-City Composite's Y-O-Y gain was 5.1% versus 4.9% in the year to July. The 20-City Composite matched the median forecast of economists surveyed by Bloomberg.

Commenting on the latest figures, S&P Dow Jones' David Blitzer, chairman of the index committee, notes that most other recent housing indicators have shown strength. “Housing starts topped an annual rate of 1.2 million units in the latest report with continuing strength in both single-family homes and apartments,” he says. “The National Association of Home Builders sentiment survey, reflecting current strength, reached the highest level since 2005, before the housing collapse. Sales of existing homes are running about 5.5 million units annually with inventories of about five months of sales. However, September new home sales took an unexpected and sharp drop, as low inventories were cited as a possible cause.”

Economists weighed in on the newest S&P/Case-Shiller results. At ITG, chief economist Steve Bitz says the key takeaway is that “homes are trading to the base economics of each particular metro area. There is no broad outsized borrowing to chase prices. And for those who still believe the problem with housing is an inventory issue, our answer is simply that if demand was that strong, prices would have long ago begun to rise faster than incomes and pull inventory into the market.”

Kristin Reynolds, US economist at IHS Global Insight, points out that the indices link “a set of 20 diverse cities, each with its own set of challenges.” Some of these cities, including Chicago, Miami and Tampa, are “still working off large foreclosure backlogs.” Although its annual home appreciation for August was less than half of San Francisco or Denver, what Boston has in common with the two Western cities is that all three are “gentrifying against a backdrop of hilly and uncooperative geography.”

Others suffer from low demand, whether due to lackluster local labor markets in the case of Cleveland, or “endemic municipal management problems,” such as Detroit. Conversely, Reynolds notes, “Several cities—Charlotte (+4.9%), Atlanta (+5.6%) and Dallas (+8.9%)—benefit both from rising median incomes and elastic housing supply.”