Case-Shiller House Prices – A Little Perspective, Please

The S&P Case-Shiller Home Price Index was released with data through November, and the press release announced declines in the 10-city and 20-city composites, as well as most of the cities covered by the composites, on a monthly and annual basis. The problem is that these comparisons lack the perspective required to accurately describe current conditions, or to help inform expectations about future price movements. Another point lost in the fanfare is that the indexes track price movements in 20 cities, no more, and  no less.

The following chart shows changes in house prices in the 20 Case-Shiller metro area indexes on a monthly (November over October), annual (November 2011 over November 2010), and peak to trough (cumulative) basis. On a monthly basis, Phoenix is the best performing market, while on an annual basis Detroit is the best. This conclusion is in spite of the fact that these markets had among the worst peak to trough declines.

Similarly, based on the monthly price changes one would conclude that the Washington, DC and Tampa markets are experiencing comparable conditions, both with a 1.1 percent decline. Or, on an annual basis, that the Atlanta market, with an 11.8 percent decline, is worse off than the Las Vegas market, which declined only 9.1 percent. Technically, the calculations are correct, but the insight provided is suspect.

A better perspective on the current conditions in these markets comes from examining the full history of the indexes. For graphs of the indexes click here cs.

Examining the full history of the indexes enables one to make richer observations about a number of major markets, including: that the Washington, DC market has made the most progress among the 20 cities in recovering from its trough in prices; that among the bubble markets, Phoenix may have stabilized, while the Florida markets and Las Vegas markets continue to decline, in contrast to the California markets, which have gained ground since their respective troughs; and that the Denver and Dallas markets largely avoided any boom and bust cycle in house prices, suggesting continued steady performance going forward.

These conclusions are not likely to fall out of any month’s examination of monthly or annual changes. A more expansive analysis is required to gauge current market conditions and form expectations for the future.