Case-Shiller home price indexes are again on the rise. What’s going on? 
Chart Notes
- The latest Case-Shiller home price indexes is for May. It represents repeat sales of the same house in roughly a March-April timeframe.
- OER stands for Owners’ Equivalent rent. It’s the price one would pay to rent one’s own home, unfurnished, without utilities.
- CPI is the consumer price index.
- Rent of primary resident is just what it sounds.
- CPI, OER, and Rent as as measured by the Bureau of Labor Statistics (BLS).
Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.
After a two-month decline in most markets, prices are again on the rise.
The Bubble Expands Again
Home prices rose in May, from April, in every city in the 10-city list.
Case-Shiller Home Prices Percent Change Year-Over-Year
Declining and Rising Cities Year-Over-Year
- Declining Cities: Denver, Las Vegas, Los Angeles, San Diego, San Francisco, D.C., plus the National and 10-City indexes. San Francisco and Las Vegas lead the way, down 11.14 percent and 7.80 percent respectively.
- Rising Cities: Boston, Chicago, Miami, and New York. Chicago and Miami lead the pack, up 4.56 percent and up 3.4 percent respectively.
Percent Decline From the National Peak
Chicago, Miami, and New York all have prices higher than the national Case-Shiller index peak in June of 2022.
What’s Going On?
- There is a dearth of existing homes for sale thanks to Fed incompetence and as explained in the points below.
- The Fed lowered interest rates to nearly zero and mortgage rates fell below 3 percent. Existing homeowners refinanced at that rate.
- People do not want to trade a 3 percent mortgage for a 7 percent mortgage.
- Thanks to points one and two, sales have dried up.
- All cash buyers are not concerned about interest rates and that supports the price of homes that do sell.
Existing Home Sales Percent Change
Existing Home Sales Seasonally Adjusted
Transaction Crash
Existing home sales have crashed to a level seen in the mid 1990s. Prices have not crashed but transactions have.
People who want to move are effectively trapped in their houses because they do not want to trade a sub-3% mortgage for a 7.0% mortgage.
The bidding wars we do see are from people who are price insensitive. They make for amusing anecdotes but the above chart shows the real picture.
This crash is likely to last longer because intertest rates are likely to stay higher for longer because the Fed fears stoking more inflation.
Home sales mean appliance sales, new furniture, cabinets, new carpet, landscaping, etc. Who doesn’t spend a lot more money when they move into a new home?
Are Home Prices Really Rising?
The Case-Shiller data is so lagging and the Fed has so distorted the market it’s hard to say with any degree of confidence.
In the 2008 bubble, once bubbles popped, there was no hint of strength for two years.
Note the existing home sales bounce in February. Interest rates momentarily dropped which led to a brief surge in buying. Mortgage rates have since climbed back 7 percent or higher and have stayed there.
Prices are at their lowest level of affordably in decades and the economy is weakening. I believe the bounce is suspect and largely over if not totally over. There’s also a lag impact of the end of three rounds of fiscal stimulus and the start of student loan payments. Both should take a toll on spending.
Beware the Huge Negative Lag Impact of Three Rounds of Covid Stimulus
For discussion, please see Beware the Huge Negative Lag Impact of Three Rounds of Covid Stimulus
Also see Noose Tightens on Consumer Credit, Auto Loan Rejections Hit Record High
This economy is seriously on fumes, just as the typical economist has given up on recession.
NAR says were short 7 million homes.
I had a thought the other day when a friend was talking to me about a political pendulum needing to swing the other way. It made me think about the Baby Boomers retiring out of the workforce and starting a economic pendulum. All of that income switching to SS & Medicare payouts. Investments and retirement contributions switching to investment cash-outs & distributions. Instead of buying 2nd homes and investment properties, they are just starting to sell them to reduce their liability and headaches.
Then it made me wonder about the type of men and women that makes up this generation. The ones that were told over and over about the Great Depression and how bad things were in WW1. The ones who fought in WW2, and many others. The strong women who picked up the slack, changed gears, helped build America, and supply goods to fight those wars. Looking at the ones who are just entering into the workforce who are coming up with terms like quiet quitting, can’t even tell if they are a woman or a man, it makes me wonder if that pendulum is the same one.
So that brought me to the idea that the Fed rate pendulum could have a long ways to go considering that it took over 40 years of a downward swing. It’s no wonder why it’s going up so fast.
These points are well-taken. As a Boomer over 70, we dumped our house and down-sized, believe it or not, into a Diesel Pusher Bus, dragging around a Car and enjoying the USA and every other winter, we travel to Southern Europe to see our many friends there.
Over 40 years ago, against everyone’s input, including my WWII parents, my wife and I shipped a Motorcycle to England and took a trip to Southern Portugal and met friends in Roma and spent time in Espana, old haunts from earlier trips). AND NO, we only had my stock sales in my pocket and that amount NOW would be about a six-month budget for avg folks my age now…..my point in mentioning that is that we BOTH had Grandparents who lived through the Depression, so we have been “framed mentally” to be VERY conservative. So, we are not typical Boomers. Many of our Boomer friends are NOW suddenly waking up to the Inflation pressures and are dumping their homes. This may well continue into a trend, esp. if they continue to call out the Government SCREAMING LIES about Inflation which are now being reported as under control and “don’t look here, nothing to see” narratives that only Politicians can come up with – – flying in the face of reason when Grocery bills are killing small families who cannot even think about buying a home.
The bigger point here is that I agree that MANY boomer will be forced to rotate into Apartments or cheaper Condos away from Coastal States that are STILL very Expensive places to live to places like Montana…where winters are harsh, but people are Family oriented and Neighborly (helping one another out) or to SUPER cheap places such as the Deep South..where American values are still VALUED.
The younger generations are not having kids, they are wanting more free time and want to work from home, so the only way to achieve those goals WILL be more affordable housing and that WILL come eventually, but only when SENTIMENTS change and EVERYONE IS BUYING AGAIN and that COULD HAPPEN….we must think in opposites.
I quit my GREAT management job when I was 28 against the sentiments of Parents (in laws, too) because I could see that when our Year Honeymoon was going to be over, I had a resume’ and would get a job FAST and I did. These younger folks doing this now (the Americans I see in Portugal, in their 40’s, Crypto Millionaires walking and Talking the COCK WALK…very proud and very obviously Americans) are out there like us but we were different. BUT, they are scooping up fancy Homes in the Algarve and seem to be pretty sure about the future.
The big thing to ponder: WILL the DOLLAR SLAM eventually. NOT Easily. But, it could happen. I worry more about the War Machine wanting more spending and more deaths.
I see Europe is a lot like the US in that you’re heading south for the winter as well! I live in North Florida. That’s the part of Florida everyone has to cross to get to where they want to go. Plenty of people have taken your advise already. You’re a little younger than the average though. You also appear to be coherent as well. However, I don’t think we have to ponder if the dollar is going to slam. They already have the crypto in place. They think it will control us, but they always think they’ve got the perfect plan. Don’t worry though, rednecks will thwart them once again. That should make you feel a whole lot better.
Hi, thinking people are not ALL rednecks? Although, I did get a sunburn this week doing “honeydo’s” in my wife’s City Planting Plot (here in Ore).
Seriously, though, one should be owning SOME precious metals as a hedge. My Bond portfolio is hedged with OPTIONS.
I have managed my own money for over 30 years, once I fired the so-called BROKERS, who managed to screw me over and over again. And, they were so nice, I thought: they MUST know what they are pitching was “real” – – right?
Yeah, I used to be one of those brokers. I also was close enough to see what sort of demons are involved in the stock market. All I have in the market now, and for about 20 years now are some mutual funds inside a VUL (variable universal life) that I own. Not even my policy. If it was, I’d have cashed it out years ago. While I agree people should be allowed to buy stock, you can’t have this many idiots involved, sellers and buyers all, and expect anything good to come out of it. Just read these posts for examples. All major players, and using all the flashing toys Wall Street provides for the sheep who don’t have the sense to just buy long and forget about it. It’s all such a hoot.
David, I love your point of view. Such a rare lifestyle that gives such a great overall view vs people who have never left their home country.
Unfortunately, I feel that war is inevitable. Especially with Communist countries.
It sure makes me wonder if I should pack up and move from California to a state with people who are Family oriented and Neighborly.
Move along.
These aren’t the droids you’re looking for.
The key flaw in using Case-Shiller for real estate is that it doesn’t account for inventory (supply) but only demand.
That’s a head scratch-er. It doesn’t account for supply or demand, only actual repeat sales.
exactly correct. case/shiller in this weird, market might be very misleading. might be a quite a few years until we see enough folks who have to sell for death/jobs/divorc………..the r/e market is trading like penny stocks right now. very bizzare. best to do nothing.
I agree there are fewer sellers, but I think there are also fewer buyers. I would guess most buyers are selling an existing home. Probably by a large pct.
Case Shiller doesn’t take into account improvements. I suspect much of the covid money went towards home improvements since people were home a lot more. That alone would drive up the cost of homes.
bingo. major flaw in case/shiller. i made a career of buying busted down 100 year old abandoned houses and restoring them and renting for a decade until cap rates make no sense.
It is amazing the price drop in Case-Shiller was only 3 or 4% peak to trough. I was certainly expecting a lot steeper drop, around 10% at least. I don’t remember anyone anticipating the “existing homeowners can’t sell” dynamic which is obviously a huge part of the home price stickiness. In my area recently more than half of houses are sold over the asking price.
case shiller great. but lagging a few months as you know and stated. the 3 markets i know intimately as a many decades r/e investor, are dropping. sf for a long time. phoenix since last summer. brooklyn dropping in working class hoods, and now even some millionaires hoods……..
True on cash in hand. I recently bought property with cash. Interests rate could be 28%. So what…meh. No impact. I think it went up during the buying process. Non issue but I understand the otherside of it. I would not be selling a home in this situation if I owed money on it. That would be really really dumb.
I agree with James above: ALL Government numbers are suspected to be “brewed for obfuscation and B.S.” It tastes like B.S., SMELLS LIKE B.S., and LOOKS LIKE B.S> ???
>>>>>>it IS BS.
My 2006 build spec home is located very near the epicenter of the huge building boom in Colorado Springs. There is no slow down in new home construction visible here as far as I can see. I bike through the miles of new homes several times a week; the strength of the new home construction frenzy is mind boggling. I thought for sure that raising mortgage interest rates to double from where they were just a few years ago would have at least some small effect on both the rate of new home construction and price; but I don’t think that is the case here in Colorado Springs.
Well, the GR took almost 5 years, 2007 – 2012, for the peak to hit the bottom.
We’re only 9 months or so into high mortgage rates above 6%.
The ONLY thing that matters is does Congress trot out rent & mortgage relief when a real recession arrives. For them to do so will thwart the needed cycle of foreclosures that will ensure prices drop back towards the mean. Otherwise, we’re stuck with ever increasing home prices that fewer and fewer people can afford. Just like in 2006’ish, only lunatics are buying houses right now. But, maybe they know that Elizabeth Warren has their backs in terms of helicopter money that’s going to fly out of the sky to save everyone who votes democrat.
CS is the kind of place people go to retire. Their housing might be propped up by retirees. Like much of Arizona. Probably not a good proxy for the nation as a whole.
C/S test the high. India banned export of white non basmati rice. India is 40% of
the global trade. Ukraine grains, NG shortages and higher rent. The Fed might hike. On Mon Congress will deal with Biden corruption. Chuck don’t care, but QQQ does.
Lay off the carbs and go keto.
Toot toot!
I don’t know why people say the data is suspect. Anytime you see +/- numbers like they always post, there ain’t no suspect at all. It’s all B.S.
Of course the average prices are rising. The percentage of all cash deals is increasing while the share of initial buyers (lower cost homes) is shrinking. Net result – Number of houses sold is dropping, but the average price is increasing.
This is not an average of prices or median prices. Case-Shiller is repeat sales of the same home.