Tuesday, May 10, 2011

Real CoreLogic House Price Index, and Price-to-Rent Ratio, back to 1999 Levels

by Calculated Risk on 5/10/2011 12:46:00 PM

By request, here is an update to a few graphs including the CoreLogic HPI released this morning (the March report is an average of January, February and March prices).

Nominal House Prices

Nominal House PricesClick on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index (through Q4 2010), and the monthly Case-Shiller Composite 20 (through February release) and CoreLogic House Price Indexes (through March release) in nominal terms (as reported).

In nominal terms, the National index is back to Q1 2003 levels, the Composite 20 index is slightly above the May 2009 lows (and close to June 2003 levels), and the CoreLogic index is back to January 2003.

Real House Prices

Real House PricesThe 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 2000 levels, the Composite 20 index is back to December 2000, and the CoreLogic index back to December 1999.

Price-to-Rent

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.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller Composite 20 (through February) and CoreLogic House Price Index (through March).

This graph shows the price to rent ratio (January 1998 = 1.0).

Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices. In recent months, OER has been increasing - lowering the price-to-rent ratio.

On a price-to-rent basis, the Composite 20 index is just above the May 2009 levels (and about at November 2000 levels), and the CoreLogic index is back to December 1999.

I'll have more analysis when the March (and Q1) Case-Shiller index is released on May 31st, but the CoreLogic index suggests prices are back to 1999 levels in terms of price-to-rent and real prices.

Earlier:
CoreLogic: House Prices declined 1.5% in March, Prices now 4.6% below 2009 Lows