A few weeks back, I posted the below chart from the Economic Report of the President showing how US housing has returned, more or less, back to fundamental value as measured by house prices versus rents (see next chart).
Following large declines from 2007 through 2011, housing prices bottomed out in early 2012, and rose 8.3 percent over the 12 months of the year, according to the CoreLogic home price index. Private sector housing experts expect house prices to appreciate at a 3.0 to 3.5 percent annual pace for the next several years. Because households have a choice between renting and owning a home, the price of new homes should increase in tandem with rental costs, at least over long periods of time. As seen in Figure 2-11, house prices increased to a level above parity with rents during the mid-2000s but descended to a level consistent with rents by the end of 2011.
Last night, Calculated Risk revealed a range of measures suggesting that US housing valuations had returned to pre-bubble levels.
First, the below chart shows that real house prices nationally – as measured by the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes – have returned to levels not seen since 1999 or 2000:
Second, Calculated Risk has plotted the price-to-rent ratios using those same house price indices, with January 1998 =1.0. As you can see, prices relative to rents are back to levels not seen since 1999 or 2001 (see next chart).
Finally, Calculated Risk shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms (see next chart). As you can see, there is wide divergence between cities.
As an aside, the below data is also supported by the Harvard Joint Centre for Housing / Demographia Median Multiple (median house price divided by median household income), which shows that US house prices relative to incomes have returned to 2001 levels, although there is obviously wide divergence between markets (see next chart).
