Four House Price Topics

Case-Shiller and the FHFA Indexes will be released on Tuesday

A brief discussion of four house price topics:

1. The 2022 conforming loan limits will be announced on Tuesday.

2. Case-Shiller will probably show a year-over-year (YoY) increase of close to 20%.

3. Repeat sales index house price growth will slow in coming months.

4. However, house price growth will remain solid as long as inventories stay low.

2022 Conforming Loan Limits

Although Case-Shiller usually receives more attention, the FHFA index will be a focus on Tuesday - since the quarterly FHFA Expanded-Data Indexes (Estimated using Enterprise, FHA, and Real Property County Recorder Data Licensed from DataQuick for sales below the annual loan limit ceiling) is used to set the Fannie & Freddie conforming loan limits (CLL), and the FHA insured limit. For more, see: How Much will the Fannie & Freddie Conforming Loan Limit Increase for 2022?

Note: Some private mortgage industry participants have already increased their “conforming loan limits” in anticipation of the FHFA raising the CLL. This was NOT an official increase. See: On Private Lenders Raising the "Conforming Loan Limit". The official announcement will be on Tuesday, November 30th and the increase will be around 18%.

Case-Shiller Index

The Case-Shiller index will probably show a year-over-year (YoY) increase of close to 20% in September. The release on Tuesday will be for “September”, but is a three-month average of July, August and September.

Each month, Zillow Research forecasts the Case-Shiller index, and their estimate is usually very close. The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 20.2% in September, up from 19.8% in August.

Repeat Sales Index House Price Growth Will Slow

Even though the September index will show another very strong YoY gain, I expect house price growth to decelerate in coming months.

Earlier this week, the National Association of Realtors® (NAR) reported that median house prices were up 13.1% year-over-year (YoY) in September. This is down from the peak growth rate of 23.6% YoY in May 2021.

Last month, Case-Shiller reported that the National Index was up 19.8% YoY in August (record YoY increase for Case-Shiller).

The median prices reported by the NAR are for the most recent month only, so the prices are very timely. However, the prices can be distorted by the mix of homes sold.

Case-Shiller is a repeat sales index (they compare the current price of home to the previous sales price), and it a three-month average. So, the most recent report (for August), was actually for homes sold in June, July and August.

Although median prices can be distorted by the mix, and repeat sales indexes (like Case-Shiller and the FHFA) are more accurate measures of house prices, the median price index might provide earlier hints on the direction of prices.

The following graph shows YoY price changes for the NAR median house prices, Case-Shiller National price index, and the FHFA purchase-only index (Fannie and Freddie loans only).

Most of the time, the NAR median price leads the Case-Shiller index, and I expect the Case-Shiller index to show a lower growth rate (but still robust) in coming months.

House Price Growth Will Remain Solid as Long as Inventories Stay Low

For house price growth to slow sharply, inventory will probably have to increase. See: Inventory will Tell the Tale

Each month, following the release of the Case-Shiller house price index, I post the graph below that 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).

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 October existing home sales report released last week, the NAR reported months-of-supply was unchanged at 2.4 months in October. There is a seasonal pattern to inventory, but this is still very low - and prices will remain solid as long as inventories stay low.