Excerpt:
It has been over 18 years since the bubble peak. In the August Case-Shiller house price index on Tuesday, the seasonally adjusted National Index (SA), was reported as being 75% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 11% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 3% above the bubble peak.
People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $433,000 today adjusted for inflation (44% increase). That is why the second graph below is important – this shows “real” prices.
The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
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The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).
In real terms (using CPI), the National index is 1.5% below the recent peak, and the Composite 20 index is 1.6% below the recent peak in 2022. Both indexes increased in August in real terms.
It has now been 27 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs (see House Prices: 7 Years in Purgatory)
