There is a reason why Case-Shiller titled its summary presentation of the April housing market based on its 20-City Composite index "Rate of Home Price Gains Drop Sharply." The reason is simple: in April the housing market, while still preserving some upward momentum, appears to stumbled severely in April, with the Y/Y increase in the 20-City composite rising "only" 10.8%, down from 12.37% the month before, and the lowest annual increase since April of 2013. And this time there is no snow to blame it on.
The disappointing print certainly took economists by surprise, who were expecting a 11.5% increase, meaning this was the biggest miss since March 2013.
And while we ignore the Seasonally Adjusted data, as Case-Shiller suggests we do, the monthly increase here pretty much explained what is going on: at a 0.19% sequential rate of increase, this was far below the 0.8% expected rise (down from 1.25% the month before), and is the lowest print since March 2012. At this pace, May home prices may even indicate a sequential decline. As a reminder, the last time we transitioned from rising hone prices to declining prices per Case Shiller was May 2010!.
From the report:
“Although home prices rose in April, the annual gains weakened,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Overall, prices are rising month-to-month but at a slower rate. Last year some Sunbelt cities were seeing year-over-year numbers close to 30%, now all are below 20%: Las Vegas (18.8%), Los Angeles (14.0%), Phoenix (9.8%), San Diego (15.3%) and San Francisco (18.2%). Other cities around the nation are also experiencing slower price increases.
“While the annual numbers worsened, the monthly figures were seasonally strong. Five cities – Atlanta, Boston, Chicago, San Francisco and Seattle – reported monthly gains of 2% or more. Dallas and Denver gained 1.6% and continue to set new peaks. Boston and Charlotte are less than 10% away from their peaks.
The punchline, and where this all feeds into the Fed's monetary policy plans:
“Near term economic factors favor further gains in housing: mortgage rates are lower than a year ago, the Fed is expected to keep interest rates steady until mid-2015 and the labor market is improving. However, housing is not back to normal: prices are being supported by cash sales, low inventories and declining foreclosure and REO sales. First time home buyers are not back in force and qualifying for a mortgage remains challenging. The question is whether housing will bounce back before the Fed begins to tighten sometime next year.”
The answer, clearly, is no. And since housing, via the securitization pathway, is still not the private sector equivalent of "High Quality Collateral" it means that without a shadow of a doubt, the Fed will have to come back and resume monetizing debt some time in the next 6-12 months, even after it ends its current tapering phase.