Case-Shiller Indices Show Home Prices Stabilizing

By Daniel Indiviglio

Today, S&P's Case-Shiller Home Prices Indices for December were released. If you adjust for seasonality, then home prices increased by 0.3% in December, according to its 20-city composite index. If you don't adjust for seasonality, then home prices declined by 0.2%. Prices fell by 3.1% year-over-year. While this news isn't exactly earth-shaking, it does show stability.

There are a few things to note about this December data. First, Case-Shiller specifically pays attention to metropolitan areas. So it isn't the broadest measure of what's happening to home prices in the U.S. It also serves as a broader indication of home value, instead of what homes are actually selling for, which can be vastly different in a market with lots of short sales and foreclosures. All of that should lead it painting a rosier picture than some other broader measures.

There's a disparity between seasonally adjusted and unadjusted data this month. Here's the adjusted data, which indicates a price increase for December:

case-shiller 2009-12 sa.PNG

And here's the same chart, unadjusted, showing a price decline:

case-shiller 2009-12 nsa.PNG

So which is more accurate? Since home prices tend to decline in the winter months, the unadjusted decrease in prices is to be expected. Indeed, seasonality would dictate an even larger expected drop, which is why seasonal adjustment led to a gain.

While it's hard to know which is more accurate a measure of what really happened with home prices, I think it's more valuable to consider the trends. Both measures don't deviate much from zero at 0.3% and -0.2%. That indicates that there wasn't much change over the month, no matter which type of data you trust. The same can be said for the data over the past several months -- really since September. I interpret that as stability.

As always, the question is: where will the market go from here? If this apparent stability is real, then you should see home prices stop falling this year. But that doesn't necessarily mean we'll see them rising significantly going forward either. I haven't seen any data to suggest we'll have a steep recovery in housing. Given how bad the market has been over the past few years, even if 2010 merely establishes firm price stability, I think that's a great start on the road to recovery.

This article available online at:

http://www.theatlantic.com/business/archive/2010/02/case-shiller-indices-show-home-prices-stabilizing/36452/