by Calculated Risk on 7/27/2022 11:30:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Real House Prices and Price-to-Rent Ratio in May

Excerpt:

It has been over 16 years since the bubble peak. In the Case-Shiller release yesterday, the seasonally adjusted National Index (SA), was reported as being 65% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 16% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is about 7% above the bubble peak.

People usually graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  As an example, if a house price was $200,000 in January 2000, the price would be almost $334,000 today adjusted for inflation (67% increase).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). ...

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 16.0% above the bubble peak, and the Composite 20 index is 7.4% above the bubble peak in early 2006.In real terms, house prices are now above the previous peak levels. There is an upward slope to real house prices, and it has been over 16 years since the previous peak, but real prices appear historically high (Of course interest rates had been very low).

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