Tuesday morning before the market opened the S&P CoreLogic Case-Shiller 20-City Home Price Index indicated record-high home prices for June. The index is a key measure of U.S. residential real estate prices, tracking changes in single-family home values across 20 major metropolitan areas. It uses a repeat-sales methodology, focusing on the price changes of the same homes over time, which helps ensure an accurate reflection of market trends.
The index is released monthly, usually with a two-month delay, and is often benchmarked against a base year of 2000, providing a reference point for comparison. It includes data from cities like New York, Los Angeles, and Chicago, providing a broad view of housing market performance in urban areas. The index is closely watched by economists, investors, and policymakers as an indicator of housing market health and broader economic conditions. As one of the most authoritative measures of U.S. home prices, it plays a crucial role in understanding and forecasting economic trends.
Building on this context, home prices continued their upward trend in June, with the benchmark 20-city index rising for the sixteenth consecutive month and setting a new all-time high. The S&P Case-Shiller Home Price Index showed a seasonally adjusted 0.4% month-over-month (MoM) increase and a 6.4% year-over-year (YoY) increase for the 20-city index. However, after adjusting for inflation, the MoM gain was reduced to 0.1%, and the YoY increase was reduced to 0.9%. Within the index, New York saw the highest growth, with annual price gains of 9%, followed by San Diego and Las Vegas with gains of 8.7% and 8.5%, respectively. In contrast, Dallas increased by only 3.6%, Minneapolis by 3.3%, Portland by 2.2%, and Denver recorded the lowest growth at 2.1%.
Brian Luke, Head of Commodities and Real and Digital assets at S&P Dow Jones Indices, commented on the recent report stating, “The S&P CoreLogic Case-Shiller Indices continue to show above-trend real price performance when accounting for inflation... Home prices and inflation continue to factor into the political agenda coming into the election season. While both housing and inflation have slowed, the gap between the two is larger than historical norms, with our National Index averaging 2.8% more than the Consumer Price Index.” He went on to say, “Before accounting for inflation, home prices have risen over 1,100% since 1974, but have slightly more than doubled (111%) after accounting for inflation.” This above-average increase in housing costs has caused the NAR’s affordability index to decline to 93.3 in June, down from 93.5 in May and 93.7 a year ago. An index value below 100 indicates that the average family cannot afford a median-priced home.
Now the question arises: How does this index and home prices impact publicly traded equities? When housing prices rise, as reflected in the S&P Case-Shiller Home Price Index (20-city), consumer confidence often improves due to the wealth effect, boosting spending and possibly benefiting consumer discretionary stocks. Higher home prices can lead to increased profitability for real estate and construction-related companies, driving up their stock prices. However, persistent price increases may raise inflation concerns, prompting the Federal Reserve to be slower to cut rates, which could negatively impact interest-sensitive sectors. The rising prices also make REITs more attractive in investment portfolios, reflecting the housing market's strength. Overall, rising home prices generally have a positive impact on the equities market, particularly in sectors tied to consumer spending and real estate. Investors should pay close attention to this and other economic reports to gauge the overall strength of the economy and guide their investment decisions.
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