House Prices Increase Sharply in July

Case-Shiller National Index up Record 19.7% Year-over-year in July

Both the Case-Shiller House Price Index (HPI) and the Federal Housing Finance Agency (FHFA) HPI for July were released today.

First, here is a graph of the month-over-month change in the Case-Shiller National Index (SA).

The month-over-month increase in Case-Shiller was at 1.55%; still historically high, but lower than the previous four months. So price growth may be slowing. House prices started increasing sharply in the Case-Shiller index in August 2020, so the last 12 months have all been historically very strong.

July 2021 was the 7th largest month-over-month increase in the National Index (since 1976). The top 5 have all been in the last year, and the last 12 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 1.4 Percent in July; Up 19.2 Percent from Last Year

House prices rose nationwide in July, up 1.4 percent from the previous month, according to the latest Federal Housing Finance Agency House Price Index (FHFA HPI®). House prices rose 19.2 percent from July 2020 to July 2021. The previously reported 1.6 percent price change for June 2021was revised upward to 1.7 percent.

For the nine census divisions, seasonally adjusted monthly house price changes from June 2021 to July 2021 ranged from+0.8 percent in the West North Central division to +1.9 percent in the South Atlantic division. The 12-month changes ranged from +15.6 percent in the West North Central division to +25.6 percent in the Mountain division.

“Record appreciation rates for the U.S. continued in July,” said Dr. Lynn Fisher, FHFA’s Deputy Director of the Division of Research and Statistics. “Although the monthly pace of increase slowed in most Census Divisions in July, four areas experienced year over year growth rates in excess of 20 percent and all saw annual gains in excess of 15 percent.”

This is the monthly index. Here is a graph from the FHFA report showing the annual change by region for July 2021 compared to July 2020. Prices have increased sharply everywhere, but especially in the Mountain and Pacific 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.

Case-Shiller House Prices

From S&P: S&P Corelogic Case-Shiller Index Reports Record High 19.7% Annual Home Price Gain in July

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 19.7% annual gain in July, up from 18.7% in the previous month. The 10-City Composite annual increase came in at 19.1%, up from 18.5% in the previous month. The 20-City Composite posted a 19.9% year-over-year gain, up from 19.1% in the previous month.

Phoenix, San Diego, and Seattle reported the highest year-over-year gains among the 20 cities in July. Phoenix led the way with a 32.4% year-over-year price increase, followed by San Diego with a 27.8% increase and Seattle with a 25.5% increase. Seventeen of the 20 cities reported higher price increases in the year ending July 2021 versus the year ending June 2021.
Before seasonal adjustment, the U.S. National Index posted an 1.6% month-over-month increase in July, while the 10-City and 20-City Composites both posted increases of 1.3% and 1.5%, respectively. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 1.5%, and the 10-City and 20-City Composites both posted increases of 1.4% and 1.5%, respectively. In July, all 20 cities reported increases before and after seasonal adjustments.

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 1.4% in July (SA). The Composite 20 index is up 1.5% (SA) in July. The National index is 43% above the bubble peak (SA), and up 1.5% (SA) in July.  The National index is up 93% 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 19.2% compared to July 2020.  The Composite 20 SA is up 20.0% year-over-year. The National index SA is up 19.7% 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 July 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 July, the months-of-supply was at 2.6 months, and the Case-Shiller National Index (SA) increased 1.55% month-over-month.  The black arrow points to the July 2021 dot.

In the August existing home sales report released last week, the NAR reported months-of-supply was unchanged at 2.6 month in August. 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 19.7% is probably close to a 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!