The May 2012 S&P Case Shiller home price index shows a -0.7% price drop from a year ago for over 20 metropolitan housing markets and a -1.0% decline for the top 10 housing markets from May 2011. This is the smallest annual price decline in 18 months. Not seasonally adjusted home prices are now comparable to April 2003 levels for the composite-20 and July 2003 for the composite-10, but up 2.2% for the month. Both composites are now down -33% from their 2006 home price bubble peaks. March 2012 home prices were record lows. 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 rising, up 11.5% from a year ago and the burning of Atlanta, down -14.6% from a year ago
S&P reports the not seasonally adjusted monthly 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.
This month the not seasonally adjusted April to May change matched the not seasonally adjusted ones. For the composite-20 this was -0.7%. The composite-10 yearly change was -1.0%.
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.
Either way you look at this month's data, most metropolitan area housing prices came off from their bottoms. From the S&P press release, using the not seasonally adjusted home price indices:
Taking a closer look at the cities, Phoenix again posted the best annual return. Average home prices in that region were up 11.5% versus May 2011. It was one of the hardest hit cities in the collapse, and prices are still more than 50% below their June 2006 peak, but the past five months have been positive for that market.
Miami and Tampa are two other Sunbelt cities that were hard-hit in the downturn, but are now showing positive annual rates of change. Boston, Charlotte and Detroit, on the other hand, saw their annual rates of return deteriorate compared to April, even though prices rose over the month of May. Las Vegas posted both a positive monthly change in May and saw an improvement in its annual return; that said, the market is still more than 60% below it August 2006 peak
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.
Here is our overview from last month.