It’s over. The fat lady has sung.
The national and 10-city Case-Shiller indexes have dropped four months.
Case-Shiller National, Top 10 Metro, CPI, Rent
Chart Notes
OER is the BLS measure Owners’ Equivalent Rent, the price homeowners would pay to rent their own home unfurnished, without utilities.
Case-Shiller measures sales prices of the exact same home over time. It factors out major improvements.
It a better measure than median or average prices because the latter does not factor in square footage, location, lot size, or amenities.
However, Case-Shiller is a lagging indicator.
The latest report is for June but that includes sales for April, May, and June.
Moreover, the sales reflects the date when the sales closed, not when the contracts were signed. April closing prices could include contracts signed as far back as February.
Percent Change Since January 2020 (Through June)
- Case-Shiller National: 51.8%
- Case-Shiller 10-City: 52.3%
- OER: 28.7%
- CPI Rent: 28.3%
- CPI: 24.7%
Home prices seriously disconnected from the CPI.
Many Millennials and Zoomers are angry at being priced out of homes rising more than double the alleged CPI.
The Decline Barely Registers
- From the peak, National is down 1.16 percent
- From the peak, 10-City is down 0.74 percent
In declining markets, prices are lower than the report indicates and in rising markets prices are higher than the report indicates.
Mess Entirely of Fed’s Making
This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.
Home prices are not directly in the CPI or PCE. The latter is the Fed’s preferred measure of inflation.
Economists consider home prices a capital expense not a consumer expense. The problem is simple: Inflation is not just a consumer price concern!
The Fed ignored obvious inflation in the Great Recession and did so again in the Covid recession.
The Fed does not know what to do now because there is no good answer.
For homes to become affordable again. mortgage rates need to decline and home prices need to fall dramatically.
Related Posts
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August 22, 2025: Existing-Home Sales Rise 2 Percent to Nowhere, Expect Steep Price Declines
NAR-reported median prices will now decline for many months.
August 23, 2025: It’s Now Twice as Expensive to Buy an Entry-Level Home than Rent
Thinking of buying a starter home? Be careful!
Outstanding! Maybe in about 24 months there will be some semblance of home affordability. Fingers crossed!
They will keep debasing the currency and prices will keep going up.
I can see why existing home prices can fall. I have a hard time seeing how new build prices have much room to fall. There is a fixed cost with labor, supplies and property. I can see lot values falling a bit but the other costs are fixed. I am thinking the profit margin is relatively inflexible. So if new build prices fall minimally I would think exisiting home prices would parallel this without a lot of downside risk. The one unknown here is if there is going to be a lot of foreclosures coming because they are finally ending the extend and pretend bs started during covid. A lot of fraud going on there with people not paying their mortgages.
From FOMO to FOGI?
re “there is no good answer”
The 1966 Interest Rate Adjustment Act is the answer. Drain reserves (money) while cutting bank rates (policy rates). Interest is the price of credit; the price of money is the reciprocal of the price level.
Monetary Flows { M*Vt }: 1966 Interest Rate Adjustment Act
Monetary Flows { M*Vt }
See Dr. Philip George’s “The Riddle of Money Finally Solved”
“For nearly a century the progress of macroeconomics has been stalled by a single error, an error so silly that generations to come will scarcely believe that it could have persisted for as long as it has done. It is an error that has been committed by John Maynard Keynes and Milton Friedman, John Hicks and James Tobin, Franco Modigliani and Ludwig von Mises, Murray Rothbard and Paul Krugman, and continues to be taught to every economics undergraduate today.”
See the Fed’s propaganda in their own “Bible”: by R. Alton Gilbert (retired senior economist and V.P. at FRB-STL) – who wrote: “Requiem for Regulation Q: what it did and why it passed away”, 2/1986 Review.
Dr. Gilbert asked the wrong question. His implicit and false premise was that savings are a source of loan-funds to the banking system. Gilbert assumed that any potential primary deposit (funds acquired from other DFIs within the system), were newfound funds to the banking system as a whole.
Thereby in his analysis, Gilbert also assumes that every dollar placed with a non-bank deprives some commercial bank of a corresponding volume of loanable funds. See Steve Keen.
http://bit.ly/2GXddnC
Gilbert asked: Was the net interest income on loans/investments derived from “attracting” these savings deposits (viz., outbidding other DFIs) greater than the interest attributable to the direct and indirect operating expenses of retail and this wholesale “funding”?
The question is not whether net earnings on CD assets are greater than the cost of the CDs to the bank; the question is the effect on the total profitability of the commercial banking system. Since all time deposits originate within the banking system, there cannot be an “inflow” of time deposits and the growth of time deposits cannot, per se, increase the size of the banking system.
This is not a zero sum game. One bank’s gain is less than the losses sustained by the other banks in the System. The whole (the forest), is not the sum of its parts (the trees), in the money creating process.
Lori Logan: “So, I believe bringing reserves down gradually, while also making our ceiling tools available and encouraging market participants to use them when they are economically attractive, will be an effective strategy in the United States.”
Logan’s right. Drain reserves while lowering policy rates.
See Dr. Richard Werner’s “Banks Don’t Lend Money”
BANKS DON’T LEND MONEY
If banks don’t lend money, why do banks fear runs on deposits? When I was a kid in the 50’s, we were taught banks and S&L’s collected and paid interest deposits to lend to businesses and individuals at a higher rate to cover expenses and provide a return. I do not believe for a minute that some well-educated seemingly articulate individual will change that basic concept of capitalism via a speech sounding like one might expect from a snake oil salesman.
To mitigate issues occurring during the great recession and then the Covid pandemic, we diverted to lending money via QE or lending wealth did not exist, look where that got us.
Bank lending is based on the velocity of deposits, not the volume of deposits. Loans = deposits. All bank-held savings originate within the system. It’s a tautology. DDs are just shifted into TDs.
Banks and S&L’s were different prior to the DIDMCA. S&L’s did loan out the deposit’s savers held. The S&Ls were nonbanks.
Economists simply can’t differentiate between an individual bank and the system. The equation, the capacity of a single bank to create credit as a consequence of a given primary deposit (and newly created deposits flow to other banks), is also applicable to a nonbank, financial intermediaries. A bank: L = P (1-d) & A nonbank: L = S (1-s)
But this comparison is superficial since any expansion of credit by a commercial bank enlarges the money supply, enlarging the system, whereas any extension of credit by an intermediary simply transfers ownership of existing money within the system (a velocity relationship).
Fractional reserve lending is inherently susceptible to implosion, it’s all a confidence game. There is also this, our currency is debt-based, there is always more debt than dollars, so no way to pay it all back. A bank run detonates a bank, external actors have to step in, but if there is enough loss of confidence the whole thing goes down.
Denmark is the happiest country on earth. Denmark colonized and oppressed Greenland. Greenland has 57,000 population. A big portion of them are MAGA supporters. Under Trump Greenland might become a US state. F**k Denmark. Denmark GDP is $360B. Denmark castrated intuits men and women. Denmark stole children.
were the voices really loud last night?
Since the drug tariffs kicked in, he can’t afford his anti-psychotic meds.
Denmark has the highest per capita use of antidepressants. I also think they put it into the drinking water instead of flouride.
What do you know about Greenland.
Smart money is buying assets (RE, Stocks, Gold) ahead of the eventual debasement of fiat.
There’s no stopping it…although higher rates and more pain on Govt spending would help.
Fred: Zillow home prices are slightly down at $368.6K. The current peak is $371.2K in Feb 2025. Can it rise higher: yes, in nominal terms.
In 1995/96 C/S was below rent. In 2011 it made a rd trip to rent. The top in 2006 was halfway. Until 2008 rent rate of change was flat. After Oct 2008 both C/S and rent started to accelerate. Since 2020 they took off. In 2025 C/S is beyond peak. Rent will deaccelerate, first. When they will meet, rent will above C/S, as it was in 1995. When C/S & rent spread will widen zoomers will salivate. Prof Puttas: did it happen in China ???
The signal: 10 city < national, as between 1991 and 1998, after the Saving & Loans banks crisis, when 6,000 banks evaporated.
For houses to become affordable again, the only thing required is for prices to decline back to fundamental value.
It’s not necessary for rates to fall.
If rates fall prices will go up. A likely net zero gain for housing.
It depends on the labor market & whether or not we’re in or clearly headed towards a recession. But yes, there’s a scenario where rates fall & the labor market remains reasonably solid that would allow prices to increase some. How likely that it is versus a recession that will push down prices along with rates is hard to tell.
That’s not how it worked in 2008-2010 as rates fell.
I flip real estate in one of the small states in New England. May and June were tough months with very little interest and lost deals. Since mid August, there’s been a huge surge in demand with lots of interest and offers. Inventory is almost non existent.
The thing is it’s not just real estate that is up over 50% over past 5 years. Dow jones is up over 50% and national debt is also over 50% higher since pre COVID. Rent is lagging because people like myself miss annual rent increases and catch up every few years or with new tenants. I don’t understand the cpi and the impacts of food production yields and energy outputs. But when the printing press is red hot with no end in sight it is very hard to imagine assets especially ones historically associated as inflation hedges to experience a crash.
Is New England representative of the US
Real estate is very regional but national policy drives the overall market. I’ve seen years of advertising by Florida and Carolinas to poach retires. Now I see many people returning because of consecutive hurricanes and rising property taxes. Regional developments are driving people to the northeast but the current path of policy making in Washington especially in regards to deficit spending is going to have a major impact on dollar valuation, inflation, gdp and asset valuations.
My son lives in Boston. We travel often and have visited much of New England. Boston has become a very international city. Lots of money, highly educated, very low crime, its hard to even find homeless people. It is built out for miles around and there isn’t much land to build on. Prices for homes are ridiculous, but so are incomes. My son and his spouse have a combined income of well over $200k and they’re in their mid-20’s. Life is great for them.
Real wages of highly skilled zoomers and millennials are rising in the midwest, south and in the west. Did your son buy a house, or rent an apt ?
= is BOSTON SAFE
FROM NICHE. com
Violent Crimes
===
assault 50% higher than national
murder/rape – 20% less
robbery is same
dont see much safeness
alx
Best to stay under your safe, wet rock.
Same pattern in coastal Southern California. Weak from spring till recently, then a sudden jump in pendings. I think the slowdown was attributable to the stock market mini-crash in the spring due to the tariffs, which has subsided.
feedback loop of well to do folks with stocks and r/e
Dead cat bounce.
Sorry, I know this is heresy on this site, but asset prices are, by definition, not supposed to be in the CPI. Asset prices, like house prices, move in line with expected discounted income streams that the asset may or may not yield, and these prices are therefore extremely volatile. No sane central bank has ever included house prices in its targeted inflation measures.
Okay. But then quit equating the CPI with inflation, when it represents only a narrow aspect of it.
Your cost of living don’t move 1:1 with house prices.
The Fed is supposed to maintain “stable prices”. A house is generally the largest purchase a household will make. When the price goes up and/or down 20-40% over just a few short years, the Fed by definition failed their mandate.
If stabilizing house prices is such a bright and obvious idea, why has no central bank in this world ever tried to stabilize house prices? That said, central banks have tried to stabilize other asset prices than houses, exchange rates foremost, usually ending up with a total mess.
Because the fed backers love asset bubbles, it makes them a lot of money. It’s their job to ignore it and tell everyone it’s not a problem. Then when the bubble pops, which apparently no one could see coming, bail outs for everyone!
OK, let’s assume the Fed is run by total crooks. But why are the some 170 other central banks of this world not targeting house prices as part of their price stability mandate? Oh, I get it. They are all run by crooks as well …
Yeah, exactly. Either they’re all crooks talking out of one side of their mouth and doing something else entirely or they’re all incompetent. Pick your poison. Bankers are out for their own benefit, not for the common man. No price stability mandate has ever been followed by any central bank.
Asset prices demonstrably do not move in line with discounted income streams, except notionally at the trough of bubbles. If asset prices were governed by such fundamentals, stocks would not be at record valuations in a time of unsustainably high profit margins and rising inflation. Both the discount rate and the future earnings needed to justify current pricing are miles from any conceivable reality. Only if one assumes endless money printing to sustain Perpetual Corporate Utopia can one get such valuations .
In reality, asset prices typically move due to speculative frenzies, “it’s going up so it must go up more!”, hyper stimulated by the excess of credit that has built up since the abandonment of the gold standard
I very much look forward to your upcoming paper demonstrating the correctness of your claims.
The Bubble Term
“I can show, really precisely, that there are two warranted prices for a share. The one I prefer is based on such fundamentals as earnings and growth rates, but the bubble is rational in a certain sense. The expectation of growth produces the growth, which confirms the expectation; people will buy it because it went up. But once you are convinced that it is not growing anymore, nobody wants to hold a stock because it is overvalued. Everybody wants to get out and it collapses, beyond the fundamentals.”
Franco Modigliani, Nobel Laureate, March 30, 2000, New York Times
I see. You are saying asset prices are determined by expected discounted income streams plus a bubble term. Close enough.
The bubble term dominates in rising markets.
Not close at all.
Fundamental value for US stock market is 50-75% down from here, just like 1929, 1968, 2000 and 2007.
After Oct 2008 Warren Buffett formula stopped working.
Bank lending produces money out of thin air. Producing money out of thin air is the major cause of inflation. Banks vastly prefer to lend for the purchase of assets, because assets can be sold in the event of default. Asset appreciation, caused by bank lending, causes people to want to invest in assets, which causes asset appreciation in a nice virtuous loop between investors and banks. Banks, over time, become highly leveraged in their lending against assets, which is fine as long as asset prices aren’t declining too much or for too long. The very purpose of the Fed is to ensure asset prices don’t decline in such a way as to cause banks to become insolvent. All of the above is why there are really few great investors. Take whatever money you have and put it in an S&P 500 fund and let it grow. The entire American economic system is designed to increase the value of assets. There may be bumps along the way, but given time, you can’t lose. You don’t have to be smart to beat most investment advisors, just know how the system works.
Interesting investment theory; but I hope you don’t apply it to your own investments.
I have and my returns run around 15% annually over last 20 years.
I don’t think that is true. Many countries include home prices not only rent. Our central bank isn’t sane to begin with. They have perverted the very reason for their existence, ie to be a lender of last resort in times of economic crisis. They have become a political tool and the puppet of the elite while the middle class burns. This is one of the reasons for the leading candidate for mayor in NYC being a communist. All part of the fourth turning.
There are about 170 proper central banks out there with an explicit price stability mandate. Name me a single one that tries to stabilize house prices as part of its price stability mandate. And good luck with that.
That is a ridiculous response. Seriously. Omitting home prices underreports true inflation. The monetary politburo in the US used to until it became to inconvenient to include it. No one is targeting home prices wtf did that come from.
Source: Google search “which nations include house prices in inflation”
Seriously, you could learn a lot if you just made an effort to look things up before spouting nonsense.
Since a lot of people have been relying on Mainstream economists, I will take a moment to de-bunk one of their main garbage talking points.
Economists have been spewing that lowering short term interest rates increases the potential for inflation. While this was true back in the 80’s and 90’s, today the opposite is true. Lowering shirt term rates decreases inflation. Back in the 80’s and 90’s household balance sheets were big on debt and light on savings/money market accounts. Today there is about $1trillion in vehicle loans and about $1 trillion in credit card debt (A lot of that gets paid off at the end of the month and accrues no interest charges). Today’s households own about $6-7 trillion in money market accounts alone. This does not include CDs or high yield savings accounts.
A decrease in short term rates reduces the cash flow going to households from their short term interest bearing accounts in an amount greater than the cost savings of the variable rate debt holdings they have.
Read that again. It is now plainly seen that reducing short term rates reduces inflation in the economy.
I agree the federal fund rate is not a powerful control. What matters now is liquidity and the Federal Reserve has made high liquidity a priority. This program has resulted in massive speculation that we see playing out in all asset markets.
Why wouldn’t one speculate? The Fed & the Politicians have shown that they will rush to the rescue if markets decline. Bankruptcy and insolvency will be contained!
The only way forward is higher asset prices. The consequence being economic stagnation and the destruction of real wealth as inflation never sleeps no matter how the bureaucrats pretend otherwise.
You think households have interest-bearing accounts?
US households have a net worth in excess of $170 trillion. They have more cash equivalents than mortgages outstanding. They have trillions and trillions of dollars of interest bearing accounts. The savings rate is about 4.5% meaning they save in excess of $1 trillion per year. If the net wealth simply keeps up with inflation, that’s an extra $4-5 trillion in nominal additions.
We’re at peak everything. Record debt, households have record cash, record gold prices with households having a record amount of physical god and silver. Record stock market, and pretty close to peak real estate prices.
on “average” yeah, but the bottom 50% only hold $4tril of that $160tril
https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/
True, but the distribution of that wealth matters. I think you need to compare maybe the median 60% of household incomes holdings today versus 30 years ago to get an accurate assessment. You may be 100% accurate, but I doubt that some guy earning $12 million annually today in interest versus $2 million 30 years is going to effect spending in the economy significantly.
I truly doubt the “record cash” comment – unless you’re just talking about boomers.
What younger families have is “record credit card debt”. They could use some record cash.
Seems misc has nominated himself for Fed Chair with his supremely superior analysis of what he knows that the Fed does not. IMPRESSIVE!
Most people have trivial interest income. Only the wealthiest enjoy meaningful interest income. They are few in number and have a very low propensity to consume more. That’s what it means to be rich. They already consume essentially to the max.
In the QE days Fed economists justified QE as a form of stimulus because of the so called “wealth effect”, but this is bogus for the same reason.
Interest rates are a weak lever, but it’s the only one the Fed has. But interest rate changes drive lots of trading, fees and profits on Wall Street.
Fiscal policy is a stronger lever. Automatic spending cuts to cool inflation might be a better approach than interest changes, but would Congress ever enable that?
So will future bubbles now be blamed on Trump given his desire to fire fed members and replace them with sycophants? If the fed cuts rates won’t that re-ignite inflation and housing bubbles again?
Inquiring minds want to know.
From the national level, this is the aftershock of the tariff turbulence in the stock market last spring. The equity market has fully recovered, and pendings in housing market has picked up substantially.
From the regional level, work from home is over, so cities without a strong job base are screwed. Cities with a strong job base will do just fine since work from home is DEAD.
Work from home isn’t dead. Most of the people I know work from home including me. Ironically, AI will probably replace so many jobs even the work from home ones that only “hands on” jobs like nurses, carpentry, electricians and plumbers will be left but that will take a few more years.
Plenty of jobs available at ICE, you just have to sacrifice your soul.
I work from home also, employed by a small college campus nearby, but haven’t set foot there in yrs.
The people I work for are in different states/ time zones.
It’s not, actually.
Lots of IT workers are hybrid, or totally remote.
It appears we may be getting closer to the trump recession.