Home prices continue rebound — but still only back to level of a decade ago

There were some very strong numbers released this morning for the S&P/Case-Shiller Home Price Indices. In addition to the monthly data for the 10- and 20-city composite indices, we also got the national index, which is updated quarterly.

All of this data is through March, by the way, and includes data from January, February, and March. So there’s a considerable lag to the Case-Shiller numbers.

From the press release, which can be downloaded here:

Data through March 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that all three composites posted double-digit annual increases. The 10-City and 20-City Composites increased by 10.3% and 10.9% in the year to March with the national composite rising by 10.2% in the last four quarters. All 20 cities posted positive year-over-year growth.

And this:

“Home prices continued to climb,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth. The National Index and the 10- and 20-City Composites posted their highest annual returns since 2006.

“Phoenix again had the largest annual increase at 22.5% followed by San Francisco with 22.2% and Las Vegas with 20.6%. Miami and Tampa, the eastern end of the Sunbelt, were softer with annual gains of 10.7% and 11.8%. The weakest annual price gains were seen in New York (+2.6%), Cleveland (+4.8%) and Boston (+6.7%); even these numbers are quite substantial.

“Other housing market data reported in recent weeks confirm these strong trends: housing starts and permits, sales of new home and existing homes continue to trend higher. At the same time, the larger than usual share of multi-family housing, a large number of homes still in some stage of foreclosure and buying-to-rent by investors suggest that the housing recovery is not complete.”

I’ve been surprised by the vigorousness of the rebound in prices, but there are a couple of key things that I did not adequately take into account: 1) the demand from potential homebuyers who accumulated cash and waited till prices bottomed and 2) the upward pressure on prices caused by the continuation of low interest rates.

Still, home prices are only back to the level first reached in 2003, as you can see on the Case-Shiller graph below, which combines both year-over-year percentage increases and nominal price levels on the index.

Screen shot 2013-05-28 at 5.13.15 PM

When adjusted for inflation, the rebound in prices has only gotten us back to a level first hit around the turn of the century, as you can see on this graph from Calculated Risk:


A simple look at these graphs suggests that home prices might continue to rise, but there’s little reason to expect dramatic increases above the historical trend line. When the Fed eventually unwinds its stimulative measures and interest rates increase, that will also restrain price increases.

We can begin to see when the national housing market returns to something like normal, even if there will continue to be large variations in different cities.