Don't Be Fooled By Reports Of Rising Home Prices

Home prices climbed at a slower-than-expected pace in April, according to latest Case-Shiller report.

However, the report continues to show far higher price gains than other reports.

Ian Shepherdson at Pantheon Macroeconomics has repeatedly argued that the declining share of cheap foreclosed home sales has been skewing average home prices higher.

"The y/y rate has averaged 12.0% in the three months to April, down from a peak of 13.6% in the three months to Dec, but this still looks too high to us; we think the CS data do not properly account for the declining proportion of foreclosure sales," he wrote following the release. "Both the FHFA and NAR price data are much weaker, and, we think, more reliable."

Back in April, he explained his rationale: "As foreclosed homes typically sell for much less than regular private sales, a decline in the proportion of foreclosure sales will raise reported prices. The correlation between changes in the proportion of foreclosures and the rate of increase of Case-Shiller home prices is not perfect, but it is real."

The median sales price of all U.S. homes was $180,000 in May, according to RealtyTrac's latest report. The median price of distressed sales, which stood at $120,000, was 37% lower than the median price of non-distressed properties, at $190,000.

Distressed sales have also been declining. Short sales and distressed sales accounted for 14.3% of all sales in May, down from 15.6% in April, and down from 15.9% a year ago.

The latest FHFA home price report showed that on the month, home prices were flat in April, while they were up a more modest 5.9% from a year ago.

Others too have noted that the Case-Shiller report is slower to reflect slower pace of home price growth. Here's Paul Diggle at Capital Economics:

Meanwhile, here's the chart from Shepherdson that shows that Case-Shiller home prices are running much higher than NAR's median home price figures: