by Calculated Risk on 1/26/2021 10:12:00 AM

Here is the post earlier on Case-Shiller: Case-Shiller: National House Price Index increased 9.5% year-over-year in November

It has been over fourteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index (SA), was reported as being 26% above the previous bubble peak. However, in real terms, the National index (SA) is about 1% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 7% below the bubble peak.

The year-over-year growth in prices increased to 9.5% nationally.

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 $292,000 today adjusted for inflation (46%).  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 November) 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 the bubble peak, and the Composite 20 index is back to early 2005.

In real terms, house prices are at 2005 levels.

Note that inflation was negative for a few months earlier this year, and that also boosted real prices.

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.

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 had been moving mostly sideways, but picked up recently.

On a price-to-rent basis, the Case-Shiller National index is back to October 2004 levels, and the Composite 20 index is back to April 2004 levels.

In real terms, prices are back to 2005 levels, and the price-to-rent ratio is back to 2004.