by Bill McBride on 12/27/2011 11:38:00 AM
Tuesday, December 27, 2011
A monthly update: Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.
Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.
Nominal House Prices
Click on graph for larger image.
The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through October) in nominal terms (as reported).
In nominal terms, the Case-Shiller National index (SA) is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to March 2003 levels, and the CoreLogic index is back to May 2003.
Real House Prices
The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.
In real terms, the National index is back to Q1 1999 levels, the Composite 20 index is back to April 2000, and the CoreLogic index back to March 2000.
In real terms, all appreciation in the '00s is gone.
In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.
Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index.
This graph shows the price to rent ratio (January 1998 = 1.0).
On a price-to-rent basis, the Composite 20 index is back to March 2000 levels, and the CoreLogic index is back to May 2000.
In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels and will probably be back to 1999 levels in the next few months.
Note: Last year I guessed that prices would decline another 5% to 10% on these national indexes (from October 2010 prices). So far prices have fallen another 3% to 4% on these indexes - with more to come - but most of the price declines are over.
• Case Shiller: House Prices fall to new post-bubble lows in October (seasonally adjusted)