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CASE-SHILLER INDICES POST RECORD MONTHLY GAINS By Mark Lieberman, Chief Economist for the Five Star Institute Home prices posted their strongest monthly gain on record in April, increasing more than 2.5 percent, according to the Case-Shiller Home Price Indices released in late June. The monthly 20-city index rose 2.5 percent in April, while the companion 10-city index increased 2.6 percent. Year-over-year, the 20-city index was up 12.1 percent, and the 10-city index was up 11.6 percent, each being the strongest yearly gain since March 2006. Case Shiller began its 10-city index in January 1987 and its 20-city index in January 2000. Economists had expected the 20-city index to increase 1.1 percent from March, a 10.9 percent annual improvement. All 20 cities included in the study showed year-over-year gains in April. The sharp increases are likely to revive concerns of a growing housing bubble. The Case-Shiller Indices have headed higher for five straight months and 11 times in the last 13 months; each index dipped last October and November. Overall, the 10-city index rose to 165.63 in April to hit its highest level since November 2008. The 20-city index improved to 152.37, also the highest level since November 2008. Of the 20 cities surveyed, Detroit was the only area not to show an increase in April. The WHAT'S HAPPENING BEYOND 'RECOVERY' HEADLINES? Industry indicators such as rising prices, increases in construction, and declines in the number of underwater homeowners tell a story of a broad housing recovery, but Harvard's Joint Center for Housing Studies (JCHS) sheds light on a less popular story in a recent report. "With rising home prices helping to revive household balance sheets and expanding residential construction adding to job growth, the housing sector is finally providing a much needed boost to the economy," said Eric S. Belsky, managing director of JCHS. "But long-term vacancies are at elevated levels in a number of places, millions of owners are still struggling to make their mortgage payments, and credit conditions for homebuyers remain extremely tight. It will take time for these problems to subside," Belsky added. Homeownership is down, and consumer spending on housing as a portion of income is up. Thirty-seven percent of households were spending more than 30 percent of their pre-tax 38 income on housing in 2011, according to the Center's report. Furthermore, 17.9 percent of the nation's households were spending more than 50 percent of their pre-tax incomes on housing. These households, which the Center considers "severely burdened," have increased 49 percent since 2001. Market conditions are pushing more households into rentals, even those in categories that used to maintain high homeownership rates, such as couples with children, high-income households, and white households, the JCHS report states. "For each 10-year age group between 25 and 54, the share of households owning homes is now at its lowest point since recordkeeping began in 1976," according to the Center. Additionally, while foreclosures and delinquencies are declining, they remain at historically elevated levels. The report notes that the delinquency rate fell from its peak of 10.1 percent in the first quarter of 2010 to 7.3 percent in the first quarter of this year. April index of Detroit home prices was 81.28, barely down from 81.3 the month before. 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 previous record monthly increase in the 10-city index came in June 2004, when it rose 2.3 percent; the previous record for the 20-city index came last May, when it increased 2.4 percent. The month-over-month index gains were led by San Francisco, where the price index rose 4.9 percent, followed by Atlanta (up 3.8 percent), San Diego (up 3.7 percent), and Los Angeles (up 3.4 percent). San Francisco also showed the strongest yearly increase—up 23.9 percent—followed by Las Vegas (up 22.3 percent), Phoenix (up 21.5 percent), and Atlanta (up 20.8 percent). The report showed a steady improvement in prices in the West. Prices have increased in Phoenix for 19 straight months, in Los Angeles and San Francisco for 14 straight months, and in Las Vegas for 13 straight months. The 10-city index is down 26.8 percent from its June 2006 high of 226.29, and the 20-city index is off 26.2 percent from its July 2006 peak reading of 206.52. "Still, more than 1.4 million homes were in foreclosure, representing 3.6 percent of all mortgages in service," the report states, adding that this equates to more than four times the average rate between 1974 and 1999. Amid this still-bleak environment, the federal budget sequestration will reduce rental housing assistance, according to JCHS. "Given the profoundly positive impact that decent and affordable housing can have on the lives of individuals, families, and entire communities, efforts to address these urgent concerns as well as longstanding housing affordability challenges should be among the nation's highest priorities," Belsky said. KNOW THIS The number of persons unemployed for 27 weeks or more—the long-term unemployed—dropped to 4,328,000 in June, the Bureau of Labor Statistics reported.