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.