Inflation Adjusted House Prices 3.0% Below Peak

Price-to-rent index is 6.9% below recent peak

It has been over 17 years since the bubble peak. In the September Case-Shiller house price index released this week, the seasonally adjusted National Index (SA), was reported as being 69% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 10% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is at 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 $424,000 today adjusted for inflation (41% 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.

Important: For real terms, I’ve switched from using CPI ex-shelter to CPI. The CPI ex-shelter measure was distorted by the pandemic related changes in household formation and was only up 1.5% year-over-year.

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) and the Case-Shiller Composite 20 index (SA) are both at all times highs. Both indexes increased in September.

Real House Prices

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 3.0% below the recent peak, and the Composite 20 index is 3.9% below the recent peak in 2022.

In real terms, national house prices are 9.4% above the bubble peak levels. There is an upward slope to real house prices, and it has been about 17 years since the previous peak, but real prices are historically high.

Price-to-Rent Ratio