Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in June

It has been over fifteen years since the bubble peak. In the Case-Shiller release Tuesday, the seasonally adjusted National Index (SA), was reported as being 40% above the bubble peak in 2006. However, in real terms, the National index (SA) is about 7% above the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 1% below the bubble peak.

The year-over-year growth in prices increased to 18.6% nationally according to Case-Shiller.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be over $306,000 today adjusted for inflation (53%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, and the monthly Case-Shiller Composite 20 SA (through April) 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 new all times highs (above the bubble peak).

Real House Prices

The second graph shows the same two indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is 7% above the bubble peak, and the Composite 20 index is back to late-2005.

In real terms, house prices are close to previous peak  levels.


In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National and Composite 20 House Price Indexes.

This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio had been moving more sideways, but picked up significantly recently.

On a price-to-rent basis, the Case-Shiller National index is back to August 2005 levels, and the Composite 20 index is back to January 2005 levels.

Price-to-Median Income

This graph uses the year end Case-Shiller house price index - and the nominal median household income through 2019 (from the Census Bureau).  2020 and 2021 median income is estimated at a 5% annual gain.

By all of these measures, house prices appear elevated. Some analysts have created indexes based on house prices, median income, and mortgage rates - so-called affordability indexes - and I’ll have more on these indexes soon.