Analyzing the effects of last week's important indicators on ETFs (Part 5 of 10)
Home prices in the U.S.
Home prices rebounded 0.8% in December after easing 0.1% the month before. Excluding some monthly volatility, home prices have been in an uptrend. The seasonally adjusted, purchase-only HPI rose in 38 states during the fourth quarter of 2013 (down from 48 states, as reported in the third quarter). Among these states, Nevada experienced the highest home price appreciation, at 4.13%, followed by California, at 2.50%, Arizona, at 3.76%, Oregon, at 2.64%, and Florida, at 2.84%. Meanwhile, the District of Columbia slipped 3.46% and Washington posted a decline of 0.24%.
The past ten consecutive quarters of rising home prices have helped support consumer confidence in the real estate market, which is expected to return from an elongated depression when the country hit its worst financial crisis. The rebound in housing activity is expected to positively impact U.S. homebuilders like D.R. Horton Inc. (DHI), Lennar Corp. (LEN), and Toll Brothers Inc (TOL).
Case-Shiller’s 20-city index
Plus, Case-Shiller’s 20-city index report released on Tuesday, February 25, 2014, also pointed to an improvement in home prices. The index rose 0.8% on an adjusted basis, down from gains of 0.9% and 1.1% in the prior two months and the slowest rate of increase since July. The increase in the index suggests rising home prices, which encourages development in sectors directly or indirectly linked to the real estate industry—such as the construction industry and the labor market. As the report shows, home price momentum especially picked up in Atlanta, Detroit, and Cleveland.
The S&P/Case-Shiller 20 Metropolitan City Composite Home Price Index measures the value of residential real estate in 20 metropolitan areas of the U.S. The index is calculated monthly using a three-month moving average and is published in February, May, August, and November—also with a two-month lag. The index is included in the S&P/Case-Shiller Home Price Index series, which seeks to measure changes in the total value of all existing single-family housing stock.
The Case-Shiller Home Price Index is based on repeat transactions. That means the index shows appreciation or depreciation for the same houses resold. This index is probably the best measure of changes in home prices. While it covers the range of houses sold, it’s strictly limited to metropolitan areas.
Despite the improved outlook in housing prices, the stock market rallied. The SPDR S&P 500 ETF Trust (SPY) ETF, which tracks the S&P 500 Index, was down 4 basis point, while the Vanguard Total Bond Market ETF (BND) was up by 20 basis points on the date of the release. Find out why overall consumer confidence shored up later in the day in the next part of this series.
Browse this series on Market Realist:
- Part 1 - Why last week’s Chicago Fed National Activity Index was negative
- Part 2 - Why hints of spring didn’t entice consumer retail spending
- Part 3 - Why are we seeing a fall in monthly US retail sales?
- Real Estate