First, last week I wrote The Coming Deceleration in House Price Growth. I noted:
Not only is Case-Shiller released with a lag … but the 3 month average means the August release will include sales in June and July too.
Still, the August Case-Shiller National Index will be up about 20% YoY
So the record year-over-year increase was expected, and the deceleration is coming.
Both the Case-Shiller House Price Index (HPI) and the Federal Housing Finance Agency (FHFA) HPI for August were released today. Here is a graph of the month-over-month (MoM) change in the Case-Shiller National Index Seasonally Adjusted (SA).
The MoM increase in Case-Shiller was at 1.43%; still historically high, but lower than the previous five months. House prices started increasing sharply in the Case-Shiller index in August 2020, so the last 13 months have all been historically very strong, but the peak MoM growth is behind us.
August 2021 was the 12th largest month-over-month increase in the National Index (since 1976). The top 5 have all been in the last year, and the last 13 months have all been in the top 25. Here is a table of the top 25 month-over-month increases (seasonally adjusted):
FHFA House Price Index and Conforming Loan Limit
As I discussed in How Much will the Fannie & Freddie Conforming Loan Limit Increase for 2022?, the FHFA HPI is used to determine the increase in the Conforming Loan Limit.
First, on the FHFA monthly index: FHFA House Price Index Up 1.0 Percent in August; Up 18.5 Percent from Last Year
House prices rose nationwide in August, up 1.0 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices rose 18.5 percent from August 2020 to August 2021. The previously reported 1.4 percent price change for July 2021 remained unchanged. …
“Annual house price gains remained extremely high in August but the pace of month-over-month gains continues to decelerate,” said Dr. Lynn Fisher, FHFA’s Deputy Director of the Division of Research and Statistics. “This does not mean house prices are at risk of declining—far from it, they continue to climb at a double-digit pace in all regions—but it does suggest we may have seen the peak in annual gains for the time being.”
This is the monthly index. Here is a graph from the FHFA report showing the annual change by region for August 2021 compared to August 2020. Prices have increased sharply everywhere, but especially in the Mountain, Pacific and South Atlantic regions.
The quarterly index is used to calculate the conforming loan limit (to be released in late November). The limit is updated annually, and is adjusted using the FHFA’s quarterly national, seasonally adjusted, expanded-data index: Expanded-Data Indexes (Estimated using Enterprise, FHA, and Real Property County Recorder Data Licensed from DataQuick for sales below the annual loan limit ceiling). The adjustment is based on the House Price Index value in Q3 divided by Q3 in the prior year - so we need the Q3 data.
There will be large increase in the conforming loan limit for 2022, probably in the 18% range.
Case-Shiller House Prices
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 19.8% annual gain in August, remaining the same as the previous month. The 10- City Composite annual increase came in at 18.6%, down from 19.2% in the previous month. The 20- City Composite posted a 19.7% year-over-year gain, down from 20.0% in the previous month. …
“The U.S. housing market showed continuing strength in August 2021,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. … “We have previously suggested that the strength in the U.S. housing market is being driven in part by a reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. More data will be required to understand whether this demand surge represents an acceleration of purchases that would have occurred anyway over the next several years, or reflects a secular change in locational preferences. August’s data are consistent with either explanation. August data also suggest that the growth in housing prices, while still very strong, may be beginning to decelerate.
This graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).
The Composite 10 index is up 0.9% in August (SA). The Composite 20 index is up 1.2% (SA) in August. The National index is 45% above the bubble peak (SA), and up 1.4% (SA) in August. The National index is up 96% from the post-bubble low set in February 2012 (SA).
The above graph shows the year-over-year change in all three indices. The Composite 10 SA is up 18.6% compared to July 2020. The Composite 20 SA is up 19.7% year-over-year. The National index SA is up 19.8% year-over-year.
House Prices and Inventory
This graph below shows existing home months-of-supply (inverted, from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through August 2021).
There is a clear relationship, and this is no surprise (but interesting to graph). If months-of-supply is high, prices decline. If months-of-supply is very low (like now), prices rise quickly.
In August, the months-of-supply was at 2.6 months, and the Case-Shiller National Index (SA) increased 1.43% month-over-month. The black arrow points to the August 2021 dot.
In the September existing home sales report released last week, the NAR reported months-of-supply decreased to 2.4 month2 in September. There is a seasonal pattern to inventory, but this is still very low - and prices are increasing sharply.
My sense is the Case-Shiller National annual growth rate of 19.8% is probably the peak, and that YoY price increases will slow later this year. Still - since the normal level of inventory is probably in the 4 to 6 months range - we’d have to see a significant increase in inventory to sharply slow price increases, and that is why I’m focused on inventory!
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