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S&P/Case-Shiller Shows Housing Slowing Down

levelHousing is slowing down, but it’s not time to panic.  Price increases are slowing as the market starts to balance out.

Sale prices of single-family homes (not seasonally adjusted) in February stayed just about flat with January prices in 20 major American cities, data released by S&P/Case-Shiller Tuesday morning shows. However, on a seasonally-adjusted basis, prices rose by nearly 1%.

The data overall shows that the housing market is indeed slowing. Year-over-year in February, the S&P/Case-Shiller 20-City Composite posted price gains of 12.9%, while the 10-City Composite showed a 13.1% gain. Both those (not seasonally-adjusted) rates are slower than increases posted in recent months. And 13 cities saw slower year-over-year price gains (not seasonally-adjusted) in February than during the month before.

Year-over-year data provides an important read on the housing market, showing that while prices are going up, the pace of gains is generally tapering. The month-by-month data (not seasonally adjusted) also underscores a slowdown: price gains have not ticked up since October 2013, according to S&P/Case-Shiller.

At first blush this is not great news, and aligns with other housing measures marking a slowdown. Last week Commerce revealed that new home sales fell by a significant 14.5% in March, while the National Association of Realtors reported that sales of existing (or pre-owned) homes also fell slightly during that month, reaching their lowest levels since July 2012. Builder confidence for newly built, single-family homes is down in April to 47, according to the National Association of Home Builders/Wells Fargo, indicating weak confidence levels. Housing starts (or groundbreakings) rose by 2.8% in March, but that pace is still 5.9% lower than the rate one year earlier. And building permits, a good indicator of the future, dropped 2.4% in March, the fourth drop over the last five months.

But as I wrote last month, it’s very important to also look at the seasonally-adjusted numbers, which smooth out predictable peaks and valleys in sales figures. That’s particularly true this year, when the bleak winter threw the housing market a bit off kilter. On a seasonally-adjusted basis, sales prices are actually up 0.8% for the 20-City Composite, and 0.9% up for the 10-City Composite, today’s S&P/Case-Shiller data shows.

Stan Humphries, chief economist for Zillow, characterizes the seasonally adjusted numbers as a silver lining. “Like pending homes sales numbers yesterday, the Case-Shiller numbers today are generally pretty positive,” he says. “Behind the flat unadjusted monthly change is a large seasonally adjusted change in home prices. It’s good to have some positive signs amidst some of the sluggish news of late.”

All in all, the data suggest a housing market that is slowing down after last year’s rapid recovery. But
the pending home figures Humphries refers to–which increased increased by 3.4% in March, their first gain in nine months–are a helpful indicator that we’re not facing a crisis.

Additionally, while most of the 20 cities Case-Shiller tracks are down on a non-seasonally adjusted basis, all are up year-over-year and month-over-month from a seasonally-adjusted standpoint. The one exception is Cleveland, where prices dropped 0.5% (seasonally adjusted) from January to February.

“The housing market is showing signs of slowing, but this was expected and is part of a broader return to normal as appreciation slows down, mortgage rates inch up and more balance between buyers and sellers emerges,” Humphries said.

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