The November 2012 S&P Case Shiller home price index shows a 5.5% price increase from a year ago for over 20 metropolitan housing markets and a 4.5% change for the top 10 housing markets from November 2011. Not seasonally adjusted home prices are now comparable to September 2003 levels for the composite-20 and October 2003 for the composite-10. Below is the yearly percent change in the composite-10 and composite-20 Case-Shiller Indices, not seasonally adjusted.
Below are all of the composite-20 index cities yearly price percentage change, using the seasonally adjusted data. We see Phoenix soaring, up 22.8% from a year ago and only, New York City down -1.2%. Atlanta has clearly hit bottom and prices have risen 7.7% from last year. The seasonally adjusted price indexes show, the composite-20 yearly percentage change was 5.6% and the composite-10 yearly percentage change was 4.6% and the difference between these figures and the not seasonally adjusted ones is rounding error.
S&P reports the not seasonally adjusted data for their headlines. Housing is highly cyclical. Spring and early Summer are when most sales occur. See the bottom of this article for their reasoning.
For the month, the not seasonally adjusted composite-20 percentage change was -0.1% whereas the seasonally adjusted change for the composite-20 was +0.6%. The monthly not seasonally adjusted composite-10 percentage change was -0.2%, whereas the seasonally adjusted composite-10 showed a 0.5% increase. This is the start of winter and the end of the buying season, so no surprise the seasonally adjusted and not seasonally adjusted figures do not match.
The above graph shows the composite-10 and composite-20 city home prices indexes, seasonally adjusted. Prices are normalized to the year 2000. The index value of 150 means single family housing prices have appreciated, or increased 50% since 2000 in that particular region. These indices are not adjusted for inflation.
News headlines on the S&P Case-Shiller Housing Index often differ. Some in the press use the seasonally adjusted data, and others do not. Some report the monthly change, others the annual change. S&P themselves use the not seasonally adjusted housing price data. To make matters worse, some in the press do not specify which statistic they are quoting from S&P. Below are the seasonally adjusted monthly home price percentage changes for each City reported by S&P.
Below are the seasonally adjusted indices for this month. Folks spin these indexes with percentages while the index itself tells you what has happened to home prices, per city, from the year 2000. Profit makers are all about the annual change whereas homeowners who bought over a decade ago are worried about the levels and how underwater they still are with their mortgages.
S&P estimates home prices are down approximately 30% from the height of the housing bubble's June and July 2006 price peaks. These statistics use the not seasonally adjusted home price indices.
Either way you look at this month's data, most metropolitan area housing prices are increasing and in strong recovery. From the S&P press release, using the not seasonally adjusted home price indices, S&P is saying the housing prices for the composite indexes have increased 8%-9% since early 2012. While this is great news showing the housing collapse is over, in terms of affordability for working families, it's really not. One simply cannot afford even a $200,000 mortgage when a household earns $42,000 a year, never mind a $300,000 one.
Winter is usually a weak period for housing which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer. The better annual price changes also point to seasonal weakness rather than a reversal in the housing market. Further evidence that the weakness is seasonal is seen in the seasonally adjusted figures: only New York saw prices fall on a seasonally adjusted basis while Cleveland was flat.
To Season or Not to Season, That is the Question:
The S&P/Case-Shiller Home Price Indices are calculated monthly using a three-month moving average and published with a two month lag. Their seasonal adjustment calculation is the standard used for all seasonal adjustments, the X-12 ARIMA, maintained by the Census.
So, why would S&P report the not seasonally adjusted data? According to their paper on seasonal adjustments, they claim the not seasonally adjusted indices are more accurate. It appears the housing bubble burst screwed up the cyclical seasonal pattern. What a surprise, although those steep cliff dives are now going back to 2009, one would think the seasonally adjusted data would now start to converge back to it's cyclical, seasonal pattern.
The turmoil in the housing market in the last few years has generated unusual movements that are easily mistaken for shifts in the normal seasonal patterns, resulting in larger seasonal adjustments and misleading results.
To see S&P's argument in action, look at the below graph. The maroon line is the seasonally adjusted national index, reported quarterly. The blue line is the not seasonally adjusted national index. As we can see before the housing bubble burst, we see a typical cyclical pattern difference between the seasonally adjusted and not seasonally adjusted data points. Yet after the bubble burst we see large swings, which would throw off a seasonal adjustment adaptive algorithm. This is going to become a major question among statisticians, how does one adjust for seasonality in the face of tsunami like economic events?
Not seasonally adjusted data can create more headline buzz on a month by month basis due to the seasonality of the housing market. S&P does make it clear that data should be compared to a year ago, to remove seasonal patterns, yet claims monthly percentage changes should use not seasonally adjusted indices and data. This seems more invalid than dealing with the statistical anomalies the massive housing bubble burst caused. Below is the seasonally adjusted and not seasonally adjusted Composite-20 Case-Shiller monthly index.
For more Information:
S&P does a great job of making the Case-Shiller data and details available for further information and analysis on their website.