Denver Market Snapshot: Introduction to the Case-Schiller Index

Recently I wrote a post about Denver home values being at an all-time high and used data from the Case Schiller Index, so I thought it would be an excellent time to introduce you to this researcher of the national real estate market, not only to understand Colorado’s local real estate market, but to give a glimpse of where we are in that national real estate picture.

The leading national real estate research resource is the Case-Schiller index, which releases monthly real estate data on the top 20 cities in the country. It compares how the market in each city has done over time as well as contrasting one city versus another. The index is compiled by comparing matched-price pairs for thousands of single-family homes in each market. Prices are for resales of stand-alone single-family homes only, not for new construction or condominiums. Case-Shiller numbers for metro Denver cover a 10-county area: Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson and Park counties.

So let’s look at how the national real estate market is looking and how the metro Denver market compares to its peer cities around the country.

Chart 1 depicts the nation’s 10-City and 20-City Composite Home Price Indices. In May 2014, the 10-City and 20-City Composites posted very strong year-over-year increases of 9.4% and 9.3%, respectively. Incredibly, there were no year-over-year declines among the 20 cities; the smallest gains were in Cleveland (up 2.4 percent) and Charlotte (up 4.7percent).

How does this compare to Denver? For a third straight month, Denver-area home-resale prices set a new all-time high in May, with average prices up 8.2 percent from a year earlier. Strong price increases in metro Denver? Yes. Still a seller’s market? Sure. But what you see is that our market is simply in line with the rest of the country, even a little bit below the national average. This perspective is critical. We sometimes get so caught up in our own market stats and drama that we forget to see the bigger picture which is that the country as a whole is going through a very strong housing rebound and Denver is simply keeping pace with it.

In other words, what we’re going through is anything but unusual; in fact, it’s the norm around the country! Chart 1 shows that the national real estate market started rising in price in 2010 (ours began rising in 2009), dipped a little in 2012, and has been on a tear ever since. Overall, the Denver market has done a little better than the national average over the past 5 years, but pegs pretty close to it. As a real estate professional hoping for a strong, steady, reasonably predictable market I find that very comforting.

Here’s another way of looking at the numbers. Chart 2 shows the index levels for the 10-City and 20-City Composite Indices. The year 2000 is the baseline, with national prices for that year assigned the number 100. As of May 2014, average home prices across the United States are back to their summer 2004 levels, with the 20-city composite price of 171 (meaning the prices rose from 2000 – 2014 by 71 percent on average around the country). Measured from their June/July 2006 peaks, the peak-to-current decline for both Composites is approximately 17-18 percent. The recovery from the March 2012 lows is 26.5% and 27.3% for the 10-City and 20-City Composites.

Interestingly, Denver’s average price gain is only 52.58 percent since 2000. So, while the real estate market for the country’s largest 20 cities has increased 71 percent since 2000 Denver has gone up only about 53 percent. Surprisingly, we lag the national average! This is one of the many reasons why I believe our bull market will continue for a while yet, at least a few more years. Sooner or later it will begin to slow as more inventory comes on the market. But we still have a way to go in this run up, since the national market is ahead of ours by over almost 20 percent.

Here are the Case-Schiller composite metro Denver figures for the past 4 years:
*    May 2014: Up 8.2 percent, index 152.58.
*    November 2013: Up 8.9 percent, index 146.45.
*    May 2013: Up 9.7 percent, index 140.98.
*    November 2012: Up 7.8 percent, index 134.5.
*    May 2012: Up 3.7 percent, index 128.48.
*    November 2011: Down 0.2 percent, index 124.79.
*    May 2011: Down 3.3 percent, index 123.94.
*    November 2010: Down 2.5 percent, index 125.02.

Chart 3 shows the data for the 20 largest cities in the country. As you can see, Denver is up 8.2%. in the past year. Good stuff, but not be any means extraordinary. In fact, the prices in 13 other cities have risen faster than ours in the past year! If I were in Las Vegas, or San Francisco, or Miami I might be somewhat nervous of an overheated market. But Denver? I see nothing today or on the near-term horizon that makes me overly concerned. What we have is a solid, healthy real estate market. Good stuff, indeed!