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CASE-SHILLER INDICES SHOW STRONGEST GAIN SINCE 2006 By Mark Lieberman, Chief Economist for the Five Star Institute Home prices posted their strongest yearly gain in almost seven years in March, with both the 10- and 20-city indices seeing double-digit gains, according to the Case-Shiller Home Price Indices. The national index, reported quarterly, was up 10.2 percent. From February to March, prices increased in 15 of the 20 cities surveyed, falling in two and staying flat in the remaining three. Economists had forecast the 20-city index would rise slightly to 147.6, an increase of 0.7 percent for the month and 10.1 percent over March 2012. Month-over-month, the 10- and 20-city indices improved 1.4 percent in March, the fastest gain for each index since last July. The national index advanced 1.2 percent for the quarter. The 10- and 20-city indices have improved year-over-year for 10 straight quarters, the first time that's happened since 2006. The quarterly index has improved year-over-year for four straight quarters, also for the first time since 2006. The Case-Shiller surveys covered the same month for which the National Association of Realtors reported the median price of an existing single-family home rose 6.2 percent. The three cities that showed no growth (and one of the cities in which prices fell for the month) were in the Midwest, indicating continuing struggles in the region. Nonetheless, the March report was an improvement over February, when prices rose in 11 cities while falling in eight. The three Midwestern cities where prices were flat in March— Chicago, Cleveland, and Detroit—saw price declines in February. The price drop in Minneapolis in March, 1.1 percent, was steeper than the 0.8 percent in February. New York was the only other city in which prices fell in March, dropping 0.4 percent after increasing 0.4 percent in February. Chicago and Detroit each saw declines in household employment in March, while in Cleveland and Minneapolis, employment barely grew. Monthly price gains were led by San Francisco, where prices grew 3.9 percent to their highest level since July 2008. Prices increased 3 percent in Seattle to the highest they've been since August 2010. Las Vegas and Portland, meanwhile, each saw 2.7 percent gains (to their highest levels since May 2009 and August 2010, respectively), while Tampa experienced a 2.6 percent improvement (to its highest level since October 2009). Finally, prices also rose in Charlotte to a level not seen in years (a 2.4 percent gain to the highest point since December 2009). Every city surveyed showed an annual price gain, led by Phoenix, where prices grew 22.5 percent; San Diego (up 22.2 percent); Las Vegas (up 20.6 percent); Atlanta (up 19.1 percent); and Detroit (up 18.5 percent). Overall, the 10-city index rose to 161.48, its highest level since August 2010, while the 20city index improved to 148.65, also the highest level since July 2010. It was the fourth straight month-over-month gain for each index. While the report showed national strength, there were some regional weaknesses. Prices failed to grow in Chicago after six straight monthly declines; they dropped in Minneapolis for the third month in a row, and in New York, the price drop was the sixth in the last seven months. The price increase in Washington, D.C., was the first after six straight months of decline. The report, however, showed a steady improvement in prices in the West. Prices have increased in Phoenix for 18 straight months, in Los Angeles and San Francisco for 13 straight months, and in Las Vegas for 12 straight months. The 10-city index is down 28.6 percent from its June 2006 high of 226.29, and the 20-city index is off 28 percent from its July 2006 peak of 206.52. Hear Mark Lieberman's commentary every Friday on P.O.T.U.S. radio (Sirius-XM 124) at 6:20 a.m. (EDT). Overall, the 10-city index rose to 161.48, its highest level since August 2010. 28 MILLIONS OF ABOVE-WATER BORROWERS CAN'T RELOCATE The number of homeowners underwater on their mortgages continued to fall in Q1, but millions still lack enough equity to afford to move, Zillow revealed in its first-quarter Negative Equity Report. According to the report, the national negative equity rate was 25.4 percent in the last quarter compared to 27.5 percent at the end of 2012. That percentage represents slightly more than 13 million homeowners with a mortgage, Zillow said. However, when including homeowners with less than 20 percent home equity, the "effective" negative equity rate climbs to 43.6 percent, or a total of 22.3 million homeowners. In its report, Zillow explained that these homeowners likely can't afford a down payment for a new home, tying them to their current homes and exacerbating the inventory shortage. "Reaching positive equity, even barely, is an important milestone. But things like real estate agents' fees and a down payment for the next home traditionally come out of the proceeds from the prior home's sale," said Zillow chief economist Dr. Stan Humphries. "Without enough equity, these costs will instead have to come out of a homeowner's pocket, leaving many still stuck." Humphries continued, "Looking at the effective negative equity rate could explain why recent, healthy declines in the number of underwater borrowers haven't yet translated into more homes for sale. The only cure is patience, as rising home values continue to build equity to the point where more homeowners can realistically sell." Among the 30 largest metro areas covered by Zillow, those with the highest effective negative equity rate are Las Vegas (71.5 percent); Atlanta (64.1 percent); and Riverside, California (59.7 percent). For the first quarter of 2014, Zillow predicts the negative equity rate among all homeowners with a mortgage (but excluding those who are in low positive equity) will fall to 23.5 percent, lifting more than 1.4 million additional homeowners into positive territory. KNOW THIS At a rate of 3.05%, the national foreclosure inventory declined 13 consecutive months in May, according to Lender Processing Services.

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