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Weekly Economic Commentary

 
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Case-Shiller Home Price Index - Noteworthy Improvement, But Durability is Uncertain

September 27, 2011

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The seasonally adjusted Case-Shiller Home Price Index held steady in July, matching the readings of the prior two months. These readings are a significant improvement after the string of declines of home prices seen for an extended period (see Chart 1). The gains in 2009 and 2010 are related to the first-home buyer program which was in place only for a short period. The encouraging news is that the FHFA House Price Index shows price gains for each of the four months ended July and the Core Logic House Price Index posted increases in three out of the last four months.

DEC 9.27 1Each of these three price indexes also shows a decelerating trend when year-to-year changes are considered (see Chart 2). Summing up, Charts 1 and 2 suggest an improvement in home prices but the persistence of foreclosures and anecdotal information about backlogs of foreclosures imply that recent price gains raise doubts about the durability of price gains. According to the National Association of Realtors, foreclosures accounted for 30% of existing home sales in August (see Chart 3). The median price of an existing single-family home, published by the National Association of Realtors, fell 5.6% from year ago in August, also represents a deceleration in home price declines. Despite projected headwinds from foreclosures, home price trends of the last four months are noteworthy.

DEC 9.27 2DEC 9.27 3In other economic news, the Conference Board’s Consumer Confidence Index rose slightly to 45.4 in September from 45.2 in the prior month. The Present Situation Index (32.5 vs. 34.3 in August) fell but the Expectations Index moved up (54.0 vs. 52.4 in August). The Conference Board’s survey includes questions pertaining to availability of jobs. The number of respondents indicating jobs are hard to get rose (50.0% vs. 48.5% in August), while a larger number indicated that jobs were also plentiful in September (5.5% vs. 4.8%) compared with the results of the August survey. But, the net of these two indexes also moved up in September (44.5 vs. 43.7 in August), implying a higher unemployment rate is likely in September (see Chart 4). The net jobs index and the unemployment rate have a strong positive correlation.

DEC 9.27 4

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The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
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