Case Shiller Update

The latest data from the S&P/Case Shiller Home Price Index shows that home
price appreciation continues to rise, though the pace of growth is “beginning to
slow down.”

According to the Case Shiller data, U.S single-family home prices in 20
metropolitan areas rose a seasonally adjusted 0.9% in June, after rising 1% in
May. Though the index shows that all 20 cities posted gains on both a monthly
and annual basis, in only six of the cities were price gains rising faster in June
than they did in May. In May ten cities saw gains rising faster than the previous

Dallas and Denver reached new all-time highs, with returns of +1.7% each in
June. San Francisco had the largest jump, up 47.0% from its low in March 2009.
Phoenix wassecond, 37.1% above its September 2011 low. The Southwest and
California have consistently led the recovery with Las Vegas, Los Angeles,
Phoenix and San Francisco posting at least 15 months of gains.

The S&P Dow Jones Indices releases the Case-Shiller Home Price Index and
states that it is “the leading measure of U.S. home prices,” though the National
Association of Realtors® (NAR) has already released their home price data for
July, well ahead of this Case Shiller June data.

As noted, Case Shiller showed that overall prices continue to increase, with the
National Index growing 7.1% in the second quarter and 10.1% over the last four
quarters. Their 10-City and 20-City Composites posted returns of 2.2% for June
and 11.9% (10-City) and 12.1% (20-City) over 12 months.

David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices
states, “Overall, the report shows that housing prices are rising but the pace may
be slowing. As we are in the middle of a seasonal buying period, we should
expect to see the most gains. With interest rates rising to almost 4.6%, home
buyers may be discouraged and sharp increases may be dampened.”
Mortgage rates have risen more than a full percentage point since early May
when they were 3.4%. Interest on the 30-year fixed rate mortgage averaged
4.58% in the week ending August 22,according to Freddie Mac.


As a continuation of the previous Case Shiller Update on home price
appreciation and real estate market conditions, analysts believe that conditions
are still good, but home price gains and sales will probably moderate over the
next year primarily due to the rise in mortgage interest rates.
Robert Shiller, Yale economics professor and co-creator of the Case Shiller
home price indexes said, “I think there is a risk of a softening housing market.”
Pointing out that the current home purchase environment has been a
“speculative market” with a large segment of buyers being investors that include
large Wall Street institutions, as well as small “house flippers.” Shiller noted that,
“rising rates will hurt home prices as the increasing cost of borrowing cuts into
buyer demand.”

In contrast to large investors, and according to the National Association of
Realtors®, first-time buyers, which normally account for at least for 40 percent of
the existing-home purchase market, are under-represented in the current
purchase market accounting for only 29 percent of purchases in July, and has
dropped further from 34 percent in July 2012.

David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, in
commenting on the moderating home price gains, said, “With interest rates rising
to almost 4.6%, home buyers may be discouraged and sharp increases may be

“Other housing news is positive, but not as robust as last spring. Starts and
sales of new homes continue to lag the stronger pace set by existing homes.
Despite recent increases in mortgage interest rates, affordability is still good as
credit qualifications have eased somewhat.”

Market analysts expect that home price appreciation rates will slow over the next
year “as investors exit the market, mortgage interest rates rise, negative equity
falls, builders ramp up and more homes come on the market.”

Jed Kolko, chief economist at Trulia, notes that, “home prices are still low relative
to rents in every major city across the country: a 30-year fixed mortgage at a rate
of 4.5% with 20% down means it is still more than a third cheaper to buy a home
than rent one on average nationally” in the current market.