Comments on February Case-Shiller and FHFA House Price Increases; New Record Monthly Increase

This graph below shows existing home months-of-supply (inverted, from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through February 2022).

Note that the months-of-supply is not seasonally adjusted.

There is a clear relationship, and this is no surprise (but interesting to graph). If months-of-supply is high, prices decline. If months-of-supply is very low (like now), prices rise quickly.

In February, the months-of-supply was at 1.7 months, and the Case-Shiller National Index (SA) increased 1.90% month-over-month. The black arrow points to the February 2022 dot. In the March existing home sales report, the NAR reported months-of-supply increased to 2.0 months.

My sense is the Case-Shiller National annual growth rate of 19.99% in August 2021 was probably the peak YoY growth rate, although this was close! Since the normal level of inventory is probably in the 4 to 6 months range – we’d have to see a significant increase in inventory to sharply slow price increases, and that is why I’m focused on inventory!

Since Case-Shiller is a 3-month average, and this report was for February (includes December and January), this included price increases when mortgage rates were significantly lower than today. In December, the Freddie Mac PMMS averaged 3.1% for a 30-year mortgage, and 3.4% in January. Currently mortgage rates are around 5.32%.

Note: I’ll have more on real prices, price-to-rent and affordability tomorrow. emphasis added

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