Daily Economic Update: Case-Shiller Price Index

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights the Case-Shiller Home Price Index.

• This morning’s economic data shed little new information on the economy or housing market.
• Home prices rose 0.9% from June to July, the 4th consecutive month of price growth in the Case-Shiller home price index.  However, while prices were up for the month, they remain 4.1% down relative to July of 2010.  That gap declined from the 12-month change of 4.4% as measured in June, suggesting a tentative move toward price stabilization.
• On a non-seasonally adjusted basis, eighteen of the twenty metro areas tracked by the Case-Shiller index rose from June to July.  Detroit experienced the strongest gain of 3.8%, but Minneapolis was close with 2.4%.  Compared to last year, Detroit and Washington, DC were the only areas with a positive year-over-year growth in prices.  The Case-Shiller index incorporates data for the three months of May, June, and July so this month’s reading does not yet reflect the more recent price trend that showed up in NAR’s release of August price data last week.
• Consumer confidence improved modestly this month after August’s sharp decline.
• Consumers’ outlook on the current situation dipped slightly, while consumers’ outlook for the future rose modestly.  Uncertainty caused by concerns of the spreading banking crisis in Europe along with Congressional inaction on the budget and the sharp revision to GDP growth in the first half of the year sent the stock markets tumbling in early August and consumer confidence crashed.  Subsequently, little has changed on any front as concerns about Greece have caused stock indexes to gyrate, Congress passed-off the budget deadlock to be decided later by a special committee, and the economy remains weak.
• Home prices as measured by the Case-Shiller index showed a modest improvement in the gap from last year’s prices.  As the market moves into fall, year-over-year measures will steadily improve as price weakness developed at this time in 2010.  However, anecdotal accounts suggests that many of the large banks and servicers have resumed processing homes in foreclosure.  As a result we may see more bank-owned homes for sale which carry a large discount relative to the market.  These sales, though necessary to reduce the shadow inventory and heal the battered mortgage lending industry, may weigh on prices, offsetting the gains relative to last year’s post-tax credit weakness.  This price weakness may add one more layer to weigh on consumer confidence.  Historically, consumer spending has been the driver of economic growth.  Weak consumer confidence will constrain spending and the economy until consumers feel more assured in the economy and job growth.