Did Home Prices Go Up or Go Down?

By Jeff Harding

The S&P Case-Shiller housing report for May came out today and the Wall Street Journal and others ran this headline: “Home Prices Rise Across U.S.: Bargain Hunting, Low Rates Drive First Gain in 3 Years; Double Dip Still Possible.” Wow, that’s big news. But it didn’t sound right. Then I realized that these were Non-Seasonally Adjusted (NSA) numbers. When S&P came out with their Seasonally Adjusted numbers a bit later in the day, I noticed that the Journal headline was the same, and the story was the same, except for this critical paragraph:

According to S&P/Case-Schiller’s seasonally adjusted numbers, which it began reporting only earlier this year, prices in May posted a 0.2% decline [2.5% annually].

In order to make sense of this, since I have been reporting that home prices have and will continue to decline, I immediately checked out the Calculated Risk blog which always has good analysis and data on the topic of the housing market.

[T]he Case-Shiller report today really bothered me. To be more accurate, the reporting on the Case-Shiller report bothers me. As I mentioned earlier today, there is a strong seasonal component to house prices, and although the seasonally adjusted Case-Shiller index was down (Case-Shiller was reported as up by the media) – I don’t think the seasonal factor accurately captures the recent swings in the NSA data.

Here is his chart:

Click to enlarge

The Blue line is the NSA data. There is a clear seasonal pattern for house prices. The red dashed line is the SA data as provided by Case-Shiller. The seasonal adjustment appears pretty good in the ’90s, but it appears insufficient now. I expect that the index will show steeper declines, especially starting in October and November.

The news media are so anxious to have this recession over that they tend to misrepresent the data. Home prices will continue to drop until inventory goes back to normal.