Existing home prices climb another one percent in August according Case-Shiller data released today. Case-Shiller lags but it’s the best measure of home prices readily available.
Chart Notes
- National and 10-City Case-Shiller home prices hit new record highs in August.
- OER, CPI, and Rent are indexes measured by the Bureau of Labor Statistics (BLS).
- OER stands for Owners’ Equivalent Rent. It’s the price one would pay to rent one’s own house unfurnished and without utilities.
Case-Shiller measures repeat sales of the same home over time and the indexes attempt to weed out major home improvements.
Case-Shiller is a far better measure of home prices than median or average prices which do not factor in the number of rooms, location, lot size, or amenities.
Case-Shiller Home Price Index National and Top 10
Not every city is at record highs although the national and 10-city indexes are. However, the price in all 10 cities increased in August.
Four Measures of Inflation Percent Change From Year Ago
Real Interest Rates
I created the above chart by substituting year-over year increases in the Case-Shiller index for OER, the largest component in the CPI.
With the Fed Funds rate ay 5.33 percent, real interest rates are positive by all measures. For example 5.33 minus 3.68 yields a real interest rate of 1.65 percent.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
As easily seen in the lead chart, home prices have surged far more than rent, OER, and the CPI. Prices remain high but mortgage activity is at 30-year lows.
For discussion, please see How the Fed Destroyed the Housing Market and Created Inflation in Pictures
The Fed will have a very difficult time escaping the mess it has made. If the Fed lowers rates, the housing bubble will blast even higher. But if it doesn’t, existing homes sales transactions will remain in the gutter.
Also see Fed Chair Jerome Powell’s half-baked admission What the Fed Could Have Done to Prevent Inflation Rise.
There’s plenty of blame to spread, but especially the Fed, for creating the artificial boom in housing.
Hello Mortgage Broker Employees, We Want Your $100,000 Signing Bonus Back
The ramifications of the Fed’s error keep piling on.
On the basis that signing bonuses were loans, a mortgage company with the ironic name “Guaranteed Rate” is demanding ex-employees return their signing bonus, some up to a million dollars.
For discussion, please see Hello Mortgage Broker Employees, We Want Your $100,000 Signing Bonus Back
Despite this sorry state of affairs being a tragedy of the Fed’s making, does anyone feel sorry for people signing two-year promissory notes as a signing bonus?
Case-Shiller is not accurately capturing the renovation work done to many houses prior to sale. People are having to dump tons of money to get out-dated house ready for sale especially in top 10 metro areas where the housing stock is older. The old days of putting just anything on the market and seeing it sell quickly above asking are gone, and sellers now have to be much more competitive, spending money on new paint, landscaping, kitchen and bath updates, and staging. Sellers are also paying for more of the closing costs, and offering credits to buyers to keep the sales price up, masking the true decline. I have several friends that are real estate agents and they can tell you this.
biggest bond market crash just happened past 2 years. r/e is slow moving………..wait another few years to start telling the story. not to mention runaway insurance and taxes and government deficits………and stupid wars and propping up stupid allies/pawns like ukraine or israel………….stay tuned. same bat channel………
Exactly and it’s gonna get ugly Real ugly
I think people are going to be desperate to buy a home beause they can’t afford to rent. They can’t afford a home on their own so multiple families will buy one house and learn to live co-habitating with another family. When I was in the mortgage industry I would see loans with multiple hispanic families doing this.
The inflationary depression is mushrooming, crushing all in it’s path. The only way the bloaters can stay atop of this is to inflate even faster. However when the wave breaks they must be divested of all.
I’m sure they will be out safely before the crash Sort of like the airline shortens on 911
“. . . existing homes sales transactions will remain in the gutter.”
Who cares if existing home SALES remain in the gutter if the economy stays buoyant and prices keep rising? Stop harping on sales declines. This measure is meaningless if prices keep rising.
What’s needed is both a crash in SALES & PRICES. New home prices are falling because they’re simply WAY OVERPRICED, because builders still have huge gross margins to do buydowns.
The system is completely out of whack with existing home prices rising while new prices are falling. NOTHING about housing makes sense nowadays.
True.
Nothing makes sense anymore.
I feel so much desperation witnessing yet another delusional leg up in an already impossible market.
The biggest insult on top of that is the lies of these policymakers.
People need to be held accountable. Druckenmiller said that Yellen shouldn’t have kept her job after her policyfailures. And he’s completely right.
I also like how Lacy Hunt and Jeffrey Gundlach are completely destroying the fake inflationnumbers and the unsustainable levels of debt.
The Overton window needs a dramatic adjustment. I hate seeing people losing their job, but we need a recession to weed out the rot. It’s been 15 years and the rot has overtaken the system.
We need a Depression to weed out this much rot A long severe one
It’s not a bubble if it never pops. I don’t expect a national decline in home prices any time in the next 5 to 7 years, they haven’t even started lowering mortgage rates yet or doing a Government backed 3% mortgage like RFK wants.
I called the Gov doing that at some point years ago. It’s inevitable.
Oh I’m not in the sensationalistic ‘housingcrash’ camp either.
At best, sideways for years.
But don’t forget, there’s massive pressure on politicians right now because this is all everyone is talking about. And people aren’t buying the propaganda and the lies anymore.
So at some point, someone needs to intervene.
Either prohibit the purchase of residential real estate by investors, force central bankers to uphold their mandates of pricestability and 2% inflation, or dramatically start building new houses.
A tiny glimmer of hope is governments intervening in residential real estate, demanding it’s purchased as a primary residence and not for renting it out, not as an investment. These are truly desperate times where speculators need to be shunned from residential properties.
At least, this is what I encountered locally. If there’s such a disconnect between low inventory and a gigantic housingshortage, this should be the number 1 condition.
The worst possible solution is to ‘pivot’ because the junkies on the stockmarket need a fix. The disconnect between these policymakers and the general public is mindblowing.
But, as I mentioned in my posts above, if you have a net worth of 100 million, the problems of the plebs don’t affect you one bit.
Prohibiting investors from buying real estate will result in higher prices, not lower.
What happens when you prohibit investors from investing in real estate? Well, for starters you prevent the single greatest source of supply from even being created.
No investors=no new homes. NO new homes=much higher prices for existing homes.
If you prohibit only the purchase of existing homes by investors where will those investors put their money? Wherever they put their money will drive up the prices of that resource, making it harder for anyone else to get ahead in that area.
The law of unintended consequences is real, and prevention of capital movement to any investment always results in worse things than if that capital had just been free to go where it wanted to invest.
How about governments funding the building of homes, rather than perpetuating endless bullsh*t wars?
Or creating an environment where residential housing is off-limits to vultures,speculators and profiteers. Because we’ve been there, done that.
Why should investors be the ONLY answer in this gigantic mess?
If that’s your solution, then I reject it.
The government already funds construction of housing units for those who cannot afford it. I currently work for one.
HUD funds hundreds of thousands of units each and every year. So, what you are asking for is already in effect.
Daniel,
I’m fully aware of existing governmental support programs.
But in the last 15 years something happened because of fraudulent interestrates properties which created unsustainable assetbubbles causing affordability to be annihilated.
Shelter because speculation at levels not seen before. Artificially low interestrates when the pandemic hit made things exponentially worse, especially when you lock down people in terrible conditions. That led to people re-evaluating their lives, their location and their hopes and dreams, causing a ‘storming out of the gate’ type stampede, a run on a very small pool of homes.
On top of that, there’s so much immigration on top of an ever increasing shortage of homes, affordable or otherwise.
And it’s too much. And little to nothing has been done to hold these failing monetary policies to account, nothing has been done to address mass-immigration, nothing is being done to facilitate millions of refugees. This has turned from a disruptive problem to a fullblown crisis.
The whole system is broken, there isn’t any kind of propertyladder anymore.
The government intervening isn’t a perfect solution, but at least it’s not the vultures profiting.
It’s time we talk about greed and profiteering.
Look at the supermarket where shrinkflation is real at the same time corporations report record-profits. It’s greed, plain and simple.
Same goes for house-flippers, speculators, AirBnB, landlords suddenly increasing rents by 30-40% in one year, investmentfunds buying up tens of thousands of residential real estate.
Look at the reality of financial repression where savers have been penalized for 15 years while WallStreet get 5,5% for doing absolutely nothing. I’ve mentioned a few times the reality of this happening right now in Ireland. Sure, you can take out a CD at 2% but what difference does that make with government taking 33% of interest earned and real inflation is at 7-10%?
I’ve had enough. I’m sick of this profoundly sick reality. Transfers of wealth, gaslighting about inflation, devaluation, moneyprinting, a completely frozen propertymarket where only the wealthy stand to have a chance or get rewarded at the expense of everyone else.
Thousands of PhD’s control the monetary system, some of the smartest minds on the planet.
This isn’t an accident, this is intentional. An underclass of debt-slaves having a lower standard of living without owning anything.
If you can’t even afford a car, an education or shelter….what other conclusion is there?
Sounds like you are describing the Silver market
Lowering rates (so-called pivot) will just accelerate the demise of the greenback so yeah home prices will hyperinflate but become nearly worthless in Gold terms
Gold is useless, housing is not. Housing will go to the moon and Gold will likely underperform relative to housing and inflation.
The dollar has “crashed” with respect to housing. This occurred because of the rampant money printing and ultra-low rates that existed for so long. The result is that many investors do not trust that the Fed will be good stewards of the currency so they would prefer to own hard assets. For some, it’s not fear of missing out but fear of being left behind holding rapidly depreciating dollars. It will take a great deal of time and persistence for the Fed to restore their credibility and change investor perceptions. It’s difficult to see how they’re going to accomplish this considering that housing inflation isn’t adequately accounted for in the government statistics.
Also, M2 money supply is still elevated and deficit spending shows no sign of slowing and these inflationary trends will tend to be supportive of housing prices. If the Fed declares victory too early, we may have to tell young first-time homebuyers priced out of the market that they need to take one for the team or at least take one for the plutocracy.
Spot on.
Of course, not just the USD, but to a greater extent, the EUR.
The US has the benefit of having its USD being the World Reserve Currency.
My biggest fear is indeed in easing and lowering rates.
This will ignite the biggest frenzy in decades.
What makes all of this worse is the dishonesty and outright lies from the power that be.
Deliberately manipulating interestrates, macro statistics with the prime example of leaving out shelter-food-energy from the data. That’s corruption, right there.
While I completely agree with everything you write, I can’t possibly agree with the suggestion that the younger generation, the first-time homebuyer needs ‘to take one for the team’. Regardless of the weaknesses or strengths of that generation, it’s not ok to dramatically reduce the standard of living at the benefit of other generations.
And I’m not even part of that younger generation.
As I’ve previously said, this is probably already a generational conflict. The fourth turning in progress.
BTW, I think it’s time to create a list of the net worth of ALL policymakers/politicians/bankers/speculators and get that out in the open.
J. Powell has a net-worth of 100million+
J. Yellen ?
C. Lagarde ?
Etc.etc.
The “taking one for the team” was my little attempt at tongue-and-cheek irony and should not be taken literally. Yes, there are too many conflicts of interest and revolving doors between the finance industry and the Fed and is one of the fundamental reforms that needs to be addressed.
Pelosi and co, Brandon and family but agreed
This is truly unbelievable.
Not only have these fraudulent monetary policies caused a societal rift, but they’re blatantly lying about inflation. Why else take shelter out of the CPI basket?
Casestudy, Ireland October 2023.
House was put on the market, about 7 buyers competing with realtor playing the usual despicable game of aiming for a biddingwar.
Endresult: saleprices exceeded askingprice by 50%.
I’m talking about an unfinished shell btw, where at minimum 150k would have to be spent to make it habitable.
This continues to go on and the prices of listings are equally unbelievable.
The greed literally drips off the way homes are listed.
Remember in the past, a house would be priced at 269.000 or 449.000.
Now, they put it like 350.000 or 700.000. Not even a pretence of advertising it attractively. Why?
Because of mass-immigration and a shortage of 500.000 homes.
As a potential homebuyer, looking for 10 year for a modest home, this is beyond depressing. I’ve sacrified everything, compromised everything, just to save up for a home. But when properties double in 5 years, you can’t save against that.
Furthermore, the 3 banks in Ireland are colluding in financial repression. They get 4% at the ECB and we get 0,25%. Even if you lock in a 12 month CD at 2%, the government deducts 33% DIRT (tax) on received interest.
With inflation still way about 7% or more, savings are losing 5% per year.
It’s not just about monetary policies, inflation or a moneyprinting anymore, it’s turning into a generational conflict. On top of that a tiered society between a minority holding wealth and properties while the rest is forced to rent.
And it keeps getting worse, month after month, year after year.
How long can it possibly go on like this?
When will something break?
When will people be held accountable for ripping apart society?
Don’t worry, revolution and only revolution, will take care of all these problems. /s
Yup but I’m too old to participate so I will just watch online from a safe distance thanks
In the US, two thirds of households own their own home so there may be some political cover to get away with this wealth-transfer scheme but it’s an incredibly unfair way to treat the first-time buyer.
Call Joe Biden … He is doing his damndest !