Case-Shiller: August Data Points to Imminent Home Price Double-Dip

It’s time for our monthly check-in of the S&P/Case-Shiller Home Price Indices (HPI). The Case-Shiller data is generally considered to be the most reliable measure of overall home price changes for a region, since they only consider repeat sales of homes when calculating their index, instead of looking at all the homes that sold in a given month.

For the full source data behind this post, hit the S&P/Case-Shiller website. For a more detailed explanation of how the Case-Shiller Home Price Index is calculated, check out their methodology pdf. Also remember that the data released on the last Tuesday of a given month is for the period two months prior (i.e. – August data is released in October).

Here are the basic Case-Shiller stats for the Los Angeles area (which Case-Shiller defines as LA and Orange Counties) as of August:

August 2010
Month to Month: Down 0.4%
Year to Year: Up 5.4%
Prices at this level in: December 2003
Peak month: September 2006
Change from Peak: Down 35.9% in 47 months
Low Tier: Under $313,392
Mid Tier: $313,392 to $516,759
Hi Tier: Over $516,759

Fifteen of the twenty metro areas tracked by Case-Shiller saw a decrease in their HPI between July and August (vs. 7 June to July). Only Detroit, Chicago, New York, Washington, and Las Vegas saw month-to-month increases.

The warning sign I’ve been harping on here for the last two months has gotten even stronger as of August, with the YOY rate of increase falling over two points in both San Diego and Los Angeles. At this point I will be very surprised if home prices as measured by the Case-Shiller index do not end up back in YOY negative territory by next March.


Here’s a look at the latest local tiered data, back through 2000:


And here’s a closer look at the recent changes, with the vertical and horizontal axes zoomed in to show just the last year:


Much like most of the other cities tracked by the Case-Shiller index, the low tier saw the largest decrease in Los Angeles in August. Month to month, the low tier was down 0.9% , the middle tier fell 0.1%, and the high tier decreased 0.1%.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves:


Here’s our peak decline chart, in which we line up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.


Here’s the flip side of the peak decline chart—a graph since January 2009, indexed to January 2009 = 100%:


The stimulus effect of the homebuyer tax credit is officially over. Note that since the Case-Shiller data is a 3-month average, the August data includes June, which was the big closing month for the last of the tax credit buyers. Next month is not likely to be any better in most markets, and in fact will probably come in with notably larger declines that was seen in August. This winter is shaping up to be quite interesting for home prices.

Methodology: The Case-Shiller index tracks price changes in sets of homes of similar size and style to better determine changes in what people are willing to pay for the same home over time. If data is available from an earlier transaction for the same home, the two sales are paired and treated as a “repeat sale.” Repeat sales that are too far apart, sales between family members, lot splits, remodels, and property type changes (e.g. from single-family to condos) are excluded from the calculations. All remaining repeat sales are totaled together and weighted based on the time between each sale, then the data for the most recent three months is averaged together to create a given month’s index value (i.e. – March’s index represents the average of the data from January through March).

The three price tiers plotted in the charts below simply represent the top, middle, and bottom third of all sales, based on the initial sale price. In other words, if there were 3,000 sales in the three-month period, 1,000 of them would be in the low tier, 1,000 in the middle tier, and 1,000 in the high tier, by definition.