by Calculated Risk on 3/05/2024 11:41:00 AM
Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 2.4% Below Peak
Excerpt:
It has been over 17 years since the bubble peak. In the December Case-Shiller house price index released last week, the seasonally adjusted National Index (SA), was reported as being 70% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 10% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 1% above the bubble peak.
People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $426,000 today adjusted for inflation (42% increase). That is why the second graph below is important – this shows “real” prices.
The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
…
The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).In real terms (using CPI), the National index is 2.4% below the recent peak, and the Composite 20 index is 3.2% below the recent peak in 2022. Both indexes declined slightly in December in real terms.
In real terms, national house prices are 10.2% above the bubble peak levels. There is an upward slope to real house prices, and it has been over 17 years since the previous peak, but real prices are historically high.
by Calculated Risk on 2/27/2024 09:00:00 AM
S&P/Case-Shiller released the monthly Home Price Indices for December (“December” is a 3-month average of October, November and December closing prices).
This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.
From S&P S&P CoreLogic Case-Shiller Index Reports 5.5% Annual Home Price Gain for Calendar 2023
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.5% annual gain in December, up from a 5.0% rise in the previous month. The
10-City Composite showed an increase of 7.0%, up from a 6.3% increase in the previous month. The
20-City Composite posted a year-over-year increase of 6.1%, up from a 5.4% increase in the previous
month. San Diego reported the highest year-over-year gain among the 20 cities with an 8.8% increase
in December, followed by Los Angeles and Detroit, each with an 8.3% increase. Portland showed a
0.3% increase this month, holding the lowest rank after reporting the smallest year-over-year growth.
…
The U.S. National Index showed a continued decrease of 0.4%, while the 20-City Composite and 10-
City Composite posted 0.3% and 0.2% month-over-month decreases respectively in December.After seasonal adjustment, the U.S. National Index, the 20-City Composite, and the 10-City Composite
all posted month-over-month increases of 0.2%.“U.S. home prices faced significant headwinds in the fourth quarter of 2023,” says Brian D. Luke, Head
of Commodities, Real & Digital Assets at S&P Dow Jones Indices. “However, on a seasonally adjusted
basis, the S&P Case-Shiller Home Price Indices continued its streak of seven consecutive record highs
in 2023. Ten of 20 markets beat prior records, with San Diego registering an 8.9% gain and Las Vegas
the fastest rising market in December, after accounting for seasonal impacts.”“2023 U.S. housing gains haven’t followed such a synchronous pattern since the COVID housing boom.
The term ‘a rising tide lifts all boats’ seems appropriate given broad-based performance in the U.S.
housing sector. All 20 markets reported yearly gains for the first time this year, with four markets rising
over 8%. Portland eked out a positive annual gain after 11 months of declines. Regionally, the Midwest
and Northeast both experienced the greatest annual appreciation with 6.7%.”
Click on graph for larger image.
The first 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 0.2% in December (SA) and is at a new all-time high.
The Composite 20 index is up 0.2% (SA) in December and is also at a new all-time high.
The National index is up 0.2% (SA) in December and is also at a new all-time high.
The second graph shows the year-over-year change in all three indices.
The Composite 10 SA is up 7.0% year-over-year. The Composite 20 SA is up 6.1% year-over-year.
The National index SA is up 5.5% year-over-year.
Annual price changes were at expectations. I’ll have more later.
It has been a case of so far so good for the UK housing market in 2024. Interest rates on newly drawn mortgages have dipped for the first time since November 2021, and according to the Nationwide House Price Index, prices rose in January.
But the timing of much-anticipated base rate cuts from the Bank of England (BoE) remains uncertain, and the pace is likely to be relatively cautious. Economists see rates falling to around 4.25 per cent by the end of 2024.
This will only do so much to ease the squeeze on homeowners. According to Robert Gardner, Nationwide’s chief economist, mortgage rates would need to fall to 3 per cent to bring payments as a proportion of take-home pay back towards the long-run average. Nationwide HPI and BoE mortgage figures will both be released on Thursday.
Monday 26 February
Japan: Inflation, core inflation
US: Building permits, new home sales, Dallas Fed Index
Tuesday 27 February
Euro area: M3 money supply
Japan: Real wages, total cash earning
UK: BRC shop price index
US: Core capital goods, durable goods orders, FHFA HPI, consumer confidence, Richmond Fed Index
Wednesday 28 February
Euro area: Business climate, consumer, economic, industrial and services confidence
Japan: Trade balance, leading index, industrial production, retail sales
US: Q4 GDP (second estimate), wholesale inventories
Thursday 29 February
Japan: Construction orders, housing starts, unemployment rate
UK: Nationwide HPI, BoE mortgage and credit data, M4 money supply
US: Auto sales, PCE inflation, core PCE inflation, personal consumption, personal income, Chicago PMI, pending home sales, Kansas City Fed Manufacturing Index
Friday 1 March
China: Manufacturing, non-manufacturing and services PMIs
Euro area: Manufacturing PMI, inflation, unemployment
Japan: Manufacturing PMI, consumer confidence
US: Manufacturing PMI, Michigan Sentiment (final), ISM Manufacturing
Moneysupermarket (MONY), house prices, Rightmove (RMV) and Abrdn European Logistics Income’s (ASLI)
The hike in motor and other insurance premiums last year drove growth at comparison site Moneysupermarket (MONY) last year, as people shopped around for cheaper deals. An 11 per cent increase in revenue was fuelled largely by a 28 per cent growth in the company’s insurance business – its largest segment. Strong demand for holidays also meant its travel business grew by a third, but the energy switching market remained moribund and the Quidco consumer cashback business for which the company paid an initial £87mn in late 2021 was flat. Operating profit rose by 9 per cent but a fairly downbeat outlook statement meant the company’s shares dipped by 2 per cent. MF
Read why we’re bullish on Moneysupermarket
House sales and asking prices rising
House sales and asking prices are rising as confidence returns to the housing market, according to data from property website Rightmove (RMV). The number of deals jumped 16 per cent in the first six weeks of this year compared with last year, and the activity was 3 per cent above 2019 levels.
It said this is being driven by increased options and enquiries, with the number of properties coming to the market up 7 per cent on last year and the number of buyers enquiring to estate agents also up 7 per cent. Meanwhile, the annual difference in asking prices is 0.1 per cent, the marginal increase marking the first rise since August 2023.
“There continue to be reasons for cautious optimism as we settle into 2024, with encouraging activity levels and a more stable housing market,” said Rightmove director Tim Bannister. ML
Read more: Green shoots of recovery for UK house prices
- House prices may flounder in the first months of 2024
- But the stage is set for a recovery in the second half of the year
Last year proved difficult for the UK property market. House prices stagnated, falling by around 2 per cent in the year to November, as the chart below shows. Looking at mortgage rates, it’s not hard to see why: the average rate for a two-year fix peaked at an eye-watering 6.11 per cent in July last year. Affordability for first-time buyers was stretched, while borrowing more to move up the property ladder looked like an unappealing prospect.
But housing market data points in 2024 have brought good news so far. The latest Bank of England (BoE) data showed that the rate on newly-drawn mortgages fell by 6 basis points to 5.28 per cent in December – the first drop since November 2021. House prices seem to be stabilising, too. According to the latest Halifax House Price Index, prices are now 2.5 per cent higher than a year ago, having risen 1.3 per cent in January alone. With rate cuts on the horizon, are we seeing the green shoots of recovery in the UK housing market?
A lot will hinge on how mortgage rates move this year. Fixed-rate mortgage deals depend on swap rates, which reflect financial markets’ expectations of where interest rates will go next. The good news is that the BoE is widely expected to start cutting rates towards the middle of the year – and this is already feeding into lower fixed-rate deals. The bad news is that expected cuts are already ‘priced in’. This could mean we don’t see any further reductions until rate cuts actually take effect.
Matters are also complicated by the fact that mortgage rates aren’t only a function of interest rate expectations. Rachel Springall, finance expert at MoneyFacts, points out that “lenders can pull deals if they have an influx of applications, and a volatile swap market can put pressure on pricing where margins are already tight”. She thinks that we will see a mix of fixed-rate rises and cuts over the months ahead, as lenders juggle both consumer demand and future rate cut expectations.
Many borrowers have so far been insulated from higher rates, thanks to cheap fixed-rate deals secured before interest rates started rising. And, as they refinance, they will face significantly higher rates than before: according to the BoE, the rate on the outstanding stock of mortgages increased by 9 basis points to 3.36 per cent in December.
Yet the total cost of household mortgage payments is probably nearing its peak. Analysts at Capital Economics forecast that by the end of 2024, households renewing two-year fixes will be refinancing onto a lower rate. Their calculations suggest that rate cuts in June could see two-year fixes drop from about 4.6 per cent to 3.8 per cent by the end of the year. This could release significant pent-up demand – giving house prices some momentum over the second half of 2024.
There might be the odd bump in the road in the meantime. Economists at NatWest think that increased saving and cautious borrowing could see house prices dip by another 2.4 per cent over the months ahead. But they note that this is “by any yardstick, a benign correction” and would leave prices about where they were in the final quarter of 2021. It now looks unlikely that prices will fall much further than that.
Payment arrears are still low, especially compared with after the financial crisis. Take-up of the government’s ‘Mortgage Charter’ (which allows borrowers to extend their mortgage terms or switch to interest-only payments) also remains very limited, suggesting low levels of mortgage distress coming down the pipeline. NatWest says that UK’s constrained housing supply could ultimately keep a ‘floor’ under house prices, and that “the tail risks of a more acute downturn with a spiral of forced selling and negative equity are low”.
by Calculated Risk on 2/04/2024 09:04:00 AM
On Friday, the BEA released their estimate of vehicle sales for January.
This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the January 2024 seasonally adjusted annual sales rate (SAAR).
Heavy truck sales really collapsed during the great recession, falling to a low of 180 thousand SAAR in May 2009. Then heavy truck sales increased to a new record high of 570 thousand SAAR in April 2019.
Click on graph for larger image.
Note: “Heavy trucks – trucks more than 14,000 pounds gross vehicle weight.”
Heavy truck sales were at 485 thousand SAAR in January, up from 458 thousand in December, and down 3.1% from 501 thousand SAAR in January 2023.
Usually, heavy truck sales decline sharply prior to a recession. Heavy truck sales are solid.
The second graph shows light vehicle sales since the BEA started keeping data in 1967. Vehicle sales were at 15.00 million SAAR in January, down 6.9% from 16.12 million in December, and down 0.7% from 15.11 million in January 2023.Vehicle sales are usually a transmission mechanism for Federal Open Market Committee (FOMC) policy, although far behind housing. This time vehicle sales were more suppressed by supply chain issues than Fed rate hikes.
Last year, the Chinese economy managed to grow at 5.2 per cent – meeting Beijing’s growth target of “around 5 per cent” by a whisker. Can it pull it off again in 2024? Analysts at French bank Societe Generale think that unless the government does more to revive animal spirits, the target will be “more challenging to achieve” this year.
Deflation in consumer and producer prices remains a real hurdle. The rate of consumer price index (CPI) inflation picked up from -0.5 per cent to -0.3 per cent in December, and producer price index (PPI) inflation also ‘improved’ from -3 per cent to -2.7 per cent. Chinese services purchasing managers’ index (PMI), inflation, PPI inflation and loan growth figures will all be released next week.
Monday 5 February
Euro area: Composite and services PMIs, Sentix Economic Index, PPI inflation
China: Services PMI
Japan: Services PMI, real household income
UK: CPIS composite and services PMIs
US: Composite and services PMIs, ISM Services
Tuesday 6 February
Euro area: Retail sales
Japan: Real wages, total cash earning, FX reserves
UK: BRC retail sales, CIPS construction PMI
Wednesday 7 February
China: FX reserves
Japan: Leading Index, bank loans, current account
UK: Halifax HPI
US: Trade balance, consumer credit
Thursday 8 February
China: New Yuan loans, M2 money supply, inflation, PPI inflation
Japan: Liquidity, M2 money supply
UK: RICS house price balance
US: Continuing jobless claims, initial claims, wholesale inventories
Friday 9 February
No major releases
by Calculated Risk on 2/01/2024 12:37:00 PM
Today, in the Calculated Risk Real Estate Newsletter: https://calculatedrisk.substack.com/p/inflation-adjusted-house-prices-23-56a
Excerpt:
It has been over 17 years since the bubble peak. In the November Case-Shiller house price index released yesterday, the seasonally adjusted National Index (SA), was reported as being 70% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 10% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 1% above the bubble peak.
People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $425,000 today adjusted for inflation (41.5% increase). That is why the second graph below is important – this shows “real” prices.
The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
…
The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).In real terms (using CPI), the National index is 2.3% below the recent peak, and the Composite 20 index is 3.2% below the recent peak in 2022.
In real terms, national house prices are 10.4% above the bubble peak levels. There is an upward slope to real house prices, and it has been over 17 years since the previous peak, but real prices are historically high.
by Calculated Risk on 1/30/2024 09:00:00 AM
S&P/Case-Shiller released the monthly Home Price Indices for November (“November” is a 3-month average of September, October and November closing prices).
This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.
From S&P S&P CoreLogic Case-Shiller Index Upward Trend Decelerates in November
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in November, up from a 4.7% rise in the previous month. The
10-City Composite showed an increase of 6.2%, up from a 5.7% increase in the previous month. The
20-City Composite posted a year-over-year increase of 5.4%, up from a 4.9% increase in the previous
month. Once again, Detroit reported the highest year-over-year gain among the 20 cities with an 8.2%
increase in November, followed again by San Diego with an 8% increase. For the third month in a row,
Portland fell 0.7% and remained the only city reporting lower prices in November versus a year ago.
…
For the first time since January 2023, the U.S. National Index and 20-City Composite posted 0.2%
month-over-month decreases in November, while the 10-City Composite posted a 0.1% decrease.After seasonal adjustment, the U.S. National Index and the 10-City Composite posted month-overmonth increases of 0.2%, while the 20-City Composite posted a month-over-month increase of 0.1%.
“U.S. home prices edged downward from their all-time high in November,” says Brian D. Luke, Head of
Commodities, Real & Digital Assets at S&P DJI. “The streak of nine monthly gains ended in November,
setting the index back to levels last seen over the summer months. Seattle and San Francisco reported
the largest monthly declines, falling 1.4% and 1.3%, respectively.”“November’s year-over-year gain saw the largest growth in U.S. home prices in 2023, with our National
Composite rising 5.1% and the 10-city index rising 6.2%. Detroit held its position as the best performing
market for the third month in a row, accelerating to an 8.2% gain. San Diego notched an 8% annual
gain, retaining its second spot in the nation. Barring a late surge from another market, those cities will
vie for the ‘housing market of the year’ as the best performing city in our composite.”“Six cities registered a new all-time high in November (Miami, Tampa, Atlanta, Charlotte, New York,
and Cleveland). Portland remains the lone market in annual decline. The Northeast and Midwest
recorded the largest gains with returns of 6.4% and 6.3%, respectively. Other regions are not far behind
with the slowest gains in the West of 3%. This month’s report revealed the narrowest spread of
performance across the nation since the first quarter of 2021.”
Click on graph for larger image.
The first 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 0.2% in November (SA) and is at a new all-time high.
The Composite 20 index is up 0.1% (SA) in November and is also at a new all-time high.
The National index is up 0.2% (SA) in November and is also at a new all-time high.
The second graph shows the year-over-year change in all three indices.
The Composite 10 SA is up 6.2% year-over-year. The Composite 20 SA is up 5.4% year-over-year.
The National index SA is up 5.1% year-over-year.
Annual price changes were below expectations. I’ll have more later.
Home prices in November cooled after nine months of stronger gains. But some locales were still red hot.
Prices in November rose from the prior month at the slowest pace since February, according to the seasonally-adjusted S&P CoreLogic Case-Shiller Home Price Indices.
Seasonally adjusted home prices nationally inched up 0.24%, slower than October’s 0.59% month-over-month gain. Prices in an index tracking 20 of the nation’s large metropolitan areas increased a seasonally adjusted 0.15%, slower than the 0.63% gain one month prior.
In a sign of seasonality setting in, unadjusted prices dropped in November from October, with prices inching down 0.18% nationally, and declining 0.24% in an index tracking 20 large metropolitan areas. A month-over-month drop isn’t uncommon at this time of year: on average, national prices dip 0.05% from October to November, historic Case-Shiller data show.
In November, “U.S. home prices edged downward from their all-time high,” Brian D. Luke, head of commodities, real & digital assets at S&P Dow Jones Indices, said in a statement referring to the unadjusted data. “The streak of nine monthly gains ended in November, setting the index back to levels last seen over the summer months.”
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Some cities were still notching new highs, the data show. Unadjusted prices rose to the highest levels since at least 1987 in Miami, Tampa, Atlanta, Charlotte, New York, and Cleveland.
Prices nationally were 5.1% higher than one year prior, and were 5.4% higher in an index tracking 20 of the nation’s large cities. The 20-city gain was the largest since November 2023, but fell short of consensus expectations that called for a 5.7% increase, according to FactSet. Of the 20 cities tracked by the index, Portland was the only metro where prices remained lower than they were one year prior.
A low supply of homes for sale, combined with late 2022’s housing market correction, likely contributed to the strong year-over-year reading. There were 1.13 million previously owned homes for sale at the end of November, well below the prepandemic average of about 2.4 million, according to National Association of Realtors data.
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A drop in mortgage rates from October’s highs means home price gains could continue. “The rate has since fallen over 1%, which could support further annual gains in home prices,” Luke said.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com