Inflation Adjusted House Prices 3.9% Below Peak

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 3.9% Below Peak; Price-to-rent index is 7.1% below recent peak

Excerpt: It has been 17 years since the bubble peak. In the December Case-Shiller house price index released on Tuesday, the seasonally adjusted National Index (SA), was reported as being 61% 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 about 1% above the bubble peak.

These inflation adjusted indexes have been declining for seven months in real terms. …

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.

Note that OER is lagging behind other measures of rent.

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 following the onset of the pandemic.

On a price-to-rent basis, the Case-Shiller National and Composite 20 indexes declined again in December for the seventh consecutive month. The price-to-rent index for the National index is off 7.1% from the recent peak, and the Composite 20 based index is off 8.7%.