by Calculated Risk on 5/25/2021 01:25:00 PM

Here is the post earlier on Case-Shiller: Case-Shiller: National House Price Index increased 13.2% year-over-year in March

It has been fifteen years since the bubble peak. In the Case-Shiller release today, the seasonally adjusted National Index (SA), was reported as being 33% above the previous bubble peak. However, in real terms, the National index (SA) is about 4% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 4% below the bubble peak.

The year-over-year growth in prices increased to 13.2% 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 over $298,000 today adjusted for inflation (49%).  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 March) 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 4% above the bubble peak, and the Composite 20 index is back to mid-2005.

In real terms, house prices are at 2005 levels.

Note that inflation was negative for a few months last 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 March 2005 levels, and the Composite 20 index is back to August 2004 levels.

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