The Case-Shiller index for February is expected to show strong national home price increases but regional price movements are better indicators of the strength of the housing market.
The average prediction of the S&P Case-Shiller 20-City Home Price Index from Bloomberg polled economists is an increase of 5.51 percent year-over-year. This number is taken from the biggest housing markets in the United States. Dissecting this number is the best way to look at what is going on in the United States housing market.
Ward McCarthy, chief financial economist at Jeffries & Company, said that the housing market is seeing an increase in demand. Couple increased demand with “very low inventories” in new home and existing home markets, will show a continued increase in home prices.
Here are five things to watch to understand April 26th release of February’s Case-Shiller Index:
- Will The National Index Continue Its Strong Growth?
If the 20-City index number is around the average prediction of an adjusted for inflation increase of 5.51 percent, which would be a slight decrease from January’s number of a 5.7 percent year-over-year increase. Even though this could be seen as a slowing in the market, a small drop could still be solid growth. Sal Guatieri, the senior economist and director of economic research at BMO Capital Markets, predicts the index will rise by 5.6 percent. That is “in line with recent trends” in the housing market. Guatieri will be looking for this kind of price growth momentum in tomorrow’s numbers.
- Will The Growth Be Widespread?
The other thing BMO Capital Markets will be looking at is whether the gains are spreading across multiple cities or just driven by a select few. In January, 14 of the cities in the 20-City Index showed larger year-to-year increased than the national average. If the gains continue to show a spread across a larger number of cities, as they did in January, it would be “an indication of durability” in the housing market.
- Big Changes in Las Vegas and Detroit?
Las Vegas and Detroit saw two of the largest collapses in housing prices following the housing bubble bursting in 2008. McCarthy will be looking to see if Las Vegas and Detroit continue to show signs of fully recovering from the collapse. In January, Las Vegas housing prices increased by 6 percent and Detroit saw a 7.1 percent increase in home prices.
- Will Dallas See A Slow Down?
McCarthy will also be looking at whether a weakening economy from depressed oil prices will have an affect on the Dallas housing market. The falling energy market has weakened the economies of oil-producing states like Texas. The average price of crude oil in February 2015 was $54.79. This February it was $31.03. In January, Dallas saw housing prices increase by 9.2 percent year-over-year. But oil prices were doing better in 2015 so look to see if the drop in prices correlates to a slowing of the Dallas housing market.
- Will Buyers Start To Be Priced Out In The Pacific Northwest?
The housing prices in the Pacific Northwest have outpaced inflation by three to five times. David Blitzer, chairman of the Case-Shiller Index Committee, released a statement today that said analysts are questioning if this rise can continue and “whether home buyers are being squeezed out of the market. Even with a strong labor market, there may be limits to how high prices can go.”
Ward McCarthy also will be looking at the housing numbers from San Francisco, Portland, and Seattle. San Francisco is home to one of the strongest housing markets in the country and in January, home prices increased by 10.5 percent. McCarthy said that the San Francisco market “smacks of excesses that leaves it vulnerable” to pricing out homebuyers.
McCarthy wants to see if Portland and Seattle are “following down the same path” as San Francisco. Portland increased by 11.8 percent and Seattle by 10.7 percent in January.
