by Calculated Risk on 9/24/2019 11:20:00 AM
Tuesday, September 24, 2019
Here is the post earlier on Case-Shiller: Case-Shiller: National House Price Index increased 3.2% year-over-year in July
It has been over eleven years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index (SA), was reported as being 13.5% above the previous bubble peak. However, in real terms, the National index (SA) is still about 7.6% below the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is still 14.6% below the bubble peak.
The year-over-year increase in prices has slowed to 3.2% nationally, but I do not expect year-over-year prices to turn negative this year. We might even see a little pickup in price growth in the 2nd half of 2019.
Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted). Case-Shiller and others report nominal house prices. As an example, if a house price was $200,000 in January 2000, the price would be close to $288,000 today adjusted for inflation (44%). That is why the second graph below is important - this shows "real" prices (adjusted for inflation).
Nominal House Prices
The first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA (through July) in nominal terms as reported.
In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).
Real House Prices
The second graph shows the same two 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 February 2005 levels, and the Composite 20 index is back to June 2004.
In real terms, house prices are at 2004/2005 levels.
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 National and Composite 20 House Price Indexes.
This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio has been moving sideways to down recently.
On a price-to-rent basis, the Case-Shiller National index is back to February 2004 levels, and the Composite 20 index is back to October 2003 levels.
In real terms, prices are back to late 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004.