The Case-Shiller index of housing prices for major markets was announced this morning:
U.S. single-family home prices rose in July albeit at a slightly slower pace, though their gain from a year ago was the strongest in more than seven years, a closely watched survey showed on Tuesday.
The S&P/Case Shiller composite index of 20 metropolitan areas rose 0.6 percent on a seasonally adjusted basis, compared to economists’ forecasts for a 0.8 percent gain. Prices rose 0.9 percent in June.
On a non-adjusted basis, prices rose 1.8 percent.
Compared to a year earlier, prices were up 12.4 percent, matching economists’ expectations and marking the strongest rise since February 2006. Prices were up 12.1 percent in the year to June.
12.4% increase year-over-year sounds pretty good and it is. At least it’s better than if prices were declining or flat. But how good is it?
Cruise on over to this graph from Calculated Risk of the Case-Shiller index from 1976 to date. As you can see, the index is now where it stood in 2004, nine years ago. On average people who’ve bought a house in the last nine years and sell now will lose money on the deal. It will take roughly another five years of growth at the present robust level for prices to get back where they were in 2006. If you adjust the index to real prices it paints a harsher picture, so there’s no relief there.
I’m not trying to paint a gloom and doom picture. I’m just trying to inject some reality into the discussion and suggest that we probably shouldn’t depend on the economy being lead by housing.
And, yet with such ‘good’ news of housing gains, you have this going on, duly brought up in this piece: Housing recovery endgame escalates.
Um. . . If I bought a house last year it’s pretty good, though. Right? And it’s a whole lot better than it was say three years ago on a house I may have bought ten years ago. Right? And is the height of a bubble the spot we’re trying to get back to? Really? Does that mean tulips have been undervalued for the last 376 years?
That’s all kind of silly. We had a huge bubble, and now that’s the good old days? Should I be awaiting the comeback of Pet.com?
The underlying question is what is a robust housing market? I think we still have a bit to go.
And if you’re expecting tulips to return to being the driver of the Dutch economy, yes, they’ll need to be valued quite a bit higher.
Here’s the NAHB’s statistics on duration of home ownership. Viewed in that context my remarks don’t look silly at all.
They’re silly because you’re taking as your starting point the height of an impending disaster. It’s like me deciding I need to get back to the 105 degree temperature I ran during a food poisoning incident years ago. We’re setting the bar at “sick as hell?”
I don’t think the housing market would be better if we were back to 2006 levels, I think it would probably mean we were in another bubble, heading for another disaster. So I’m happy with 98.6. Actually 12% in a year worries me. It’s 20% here in Tiburon.
Let me try another way. Economic policy in the United States, such as it is, relies on consumer spending as the engine for the economy and the largest single component of consumer spending is housing.
Housing isn’t producing the robust growth we need to put people back to work right now. I won’t bother looking it up but consult a graph of employment in the housing sector. It continues to be really phlegmatic.
I’m not advocating a return of housing to its former heights. I’m just pointing out what it would take to get there.
My view is quite different from present policy. I think we should discourage consumer spending (on a relative basis) in favor of domestic business spending. IMO that business spending could be a larger proportion of the total economy than it is now is obvious since it wasn’t all that long ago that it was and, contrary to consumer spending, much of business services and business equipment are produced domestically.
Consumer spending can’t be the engine of the economy as long as we’re importing as much as we are right now and housing isn’t roaring back. We need to do something else.
Dave — I love the Tulip reference.
Michael — Your optimism in the housing market is, well, “optimistic.” However, the realism behind it might be suspect, as various economic indicators continue to be lagging behind supporting such a rosy housing scenario.
I for one, think that our debt will eventually become an intolerable fiscal weight which will have to be painfully recognized and rectified.
Dave:
I think by any rational standard 12% is robust. Put it this way: it’s unsustainable. Prices would be doubling in what, 6 or 7 years? I really don’t think we want that, do we? So, it’s not only robust, it’s too much. The 20% here is waaaay too much.
So, housing prices are rising robustly, the deficit is coming down, the growth rate of health care costs is flattening, God knows the market is doing well, we’re inches away from energy independence, I may be wrong but isn’t the balance of trade pretty good, and isn’t the dollar stable? Aside from unemployment (granted a very big ‘aside’) aren’t things pretty much okay and better than most of the world?
Here in Illinois the unemployment rate is at 9.1%, a half point higher than California and a point and a half higher than the U. S. overall. Chicago’s unemployment rate is 10.3%—same as LA. I don’t measure economic strength by the stock market. GDP growth will be less than 2% for 2013. That’s below the post-war average, considerably below trend.
Here’s the GAO’s estimates of the trend in spending for Medicare and Medicaid.
We’re running a trade deficit of about $40 billion per month, roughly a half trillion per year. Rather than being “good” I think that’s a major drag on economic growth here.
From where I sit we have a long way to go.
The most cogent way to view this economy is explained by the “Of Two Minds” blog, in their piece on the Big-Picture Economy:
The key phrase IMO is illusory sense of wealth and prosperity, akin to the pot of gold imagined to be at the end of every temporary rainbow.
Michael,
I’m curious how we are “inches away” from energy independence? As for health costs flattening, there is conflicting evidence supporting that assurance, as well as the fact that the real fiscal impact of the ACA has not yet been realized. The UE stat is also skewed because of the decline in the overall participation of workers, as well as the deluge of part time work available versus the full 40-hour work week most want. Then we have the back-slapping deficit reduction claims, which many say is due to reluctant demands of sequester, and by an often derided House for dampening, discussing or obstructing spending whims of the WH and Senate. Finally, there is the ballooning of the stock market. But, the big question —> is that due to a healthy growing economy or to the Fed and it’s QU policies, which have artificially supported the wealth of Wall Street at the expense of continuing the jobless suffering of the middle class?
@michael reynolds
Aside from unemployment (granted a very big ‘aside’) aren’t things pretty much okay and better than most of the world?
For you, your family, your friend, and your colleagues, things are pretty sweet. For the unemployed, the guy on the loading dock, and the printing press operator, things are not quite as sweet. I am sure that you are concerned, but your concerns are as useful as a warm bucket of spit.
Rich liberals have saved the world for the rich, and the rich conservatives will not thank them. It is a cruel world for the rich liberals.
I might add that for TastyBits’s “the unemployed, the guy on the loading dock, and the printing press operator” (or for me for that matter) that we’re not living in packing crates in New Delhi is good but not particularly cheering.
I still think the Case-Shiller index is problematic to attempt broad claims. The 10 or 20 cities chosen are not necessarily typical, and homes which have repeat sales are not necessarily typical. That means to me that the huge drop in the index was primarily the result of flipping McMansions in certain areas of the country, and didn’t reflect common experiences of most homeowners. The drift upward might mean little as well to most homeowners.
Agree with PD. In my area of Florida things are still at the bottom for the most part, but there is a lot of variability by neighborhood which averaged statistics don’t capture.
Andy and PD make correct points, all RE is local. But the real question is when will the United States government get out of the way and let the RE market (and other time financed assets) clear and reach equilibrium……….and not artificially prop it up with cheap financing and credit acceptance pressure?
So we need to let government get out of the way so that real estate prices can do what? More than double in six years?
Dave, Jan, Red, Tasty: You don’t make very compelling cases. Yes, unemployment is bad. It’s very bad for the unemployed. It’s bad for society.
That said, no, RE price is not growing too slowly, it’s too fast. No, 2006 is not the benchmark against which we should judge RE, that’s absurd on its face.
Oh, and the Obamacare pricing is out. Looks like the CBO pretty consistently overstated the premiums. So, actually, in a lot of states it seems health insurance will be getting cheaper. Even cheaper than the CBO thought. And that’s before we get all the kids in the pool.
You’re still misunderstanding me. Present policy is that economic growth will be propelled by housing. I’m not making that up. Look at what the policies are. We subsidize home ownership. We subsidize borrowing to purchase a home. There are no alternatives being put into place.
Economic growth propelled by housing just isn’t going to happen unless housing prices continue increase. I’m not suggesting that they should. Just that present policy requires that.
@michael reynolds
Yes. The government should not be in the real estate business. If real estate can support doubling, tripling, or quadrupling in six months or six years, it should do so. Making cheap money available results in bubbles.
The stock market is in a bubble, and it will drop as soon as the cheap money goes away.
As to Obamacare, adding millions of users without adding more providers is going to lower quality. At the VA wait times are months, and you take what is available. I have a neurology appointment for the next available time – mid-December.
Most of the doctors and nurses recommend going to the ER or Urgent Care for “emergencies”. Translation: if you want treatment quicker, go to the ER, and you will get treated faster. I expect it will be the same for everybody else. The ER will become more utilized not less, but it will not be the end of the world.
Your compassion astounds me. “Let them eat cake.” Or, “let them get a government handout.” If there is no political advantage, you have no interest in the problem.
I have no doubt that your neighborhood will never have an abandoned home taken over by crack-heads. Your taxes pay the police to ensure that the undesirables stay out. If any of them to wander into your neighborhood, they would be pissing blood for a week.
I am certain that there is somebody who could comment on this, but I suspect he is too tired of trying to make the same point countless times.
Being trapped in an underwater house, in a neighborhood with many abandoned houses, without a job, and without prospects of getting one is a little more than “bad”.