New Home Price Data: Asset Inflation Growth Continues Unabated, But Hits a Plateau

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New Home Price Data: Asset Inflation Growth Continues Unabated, But Hits a Plateau

Earlier today, I reported on the latest job numbers which are disappointing and worrisome. If you read that and thought “there they go again, those perma-bear Austrians,” I'll point you to this weeks housing data. After all, just because the job market points toward stagnation doesn't mean that news is bad everywhere. If you're well-positioned to benefit from asset-price inflation, things are looking good.

This week, Case-Shiller released new numbers for its July home price index, and for its 20-city composite index, home values were up, year-over-year for the 38th month in a row. for July, the composite index was up 4.9 percent:

That increase is down from 2013's peak growth levels when YOY increases were coming in around 12 or 13 percent, month after month. Increases now have plateaued around 5 percent for the past six months. Weakness in the job market probably is pushing down on demand, which has brought home price inflation down to more mundane levels.

Nevertheless, if you're a property owner it's boom times for you. After all, as home prices move upward, rental housing becomes the only option for many households, driving up rents and benefiting current owners. Thanks to high home prices and low inventory, rental vacancies are at a 20-year low, which means high rents. If you're a REIT or in commercial real estate, things are looking good:

(Source: US Census Bureau)

We shouldn't be surprised when we see some indicators moving up, while some are moving down. As Brendan Brown has often noted in his articles, the economy is more complex than we give it credit for, and it acts in unpredictable ways when we interfere in the price mechanism via central banks and via fiscal policy.

Certainly, current monetary policy continues to favor the real estate sector in many metro areas. And, of course, the trends are also affected by demographic trends, local government restrictions and more. Those factors are difficult to predict as well.

When the boom does reach its end, where will the trends show up first? Will the next crisis become apparent in home price data the way the last bust did? It's impossible to say right now. We do know that Case-Shiller data showed home prices declining quickly by the end of 2006. That should have set up some warning bells at the time. So far for this cycle, the trend only point up in home prices, albeit at a more moderate rate than was the case two years ago:


October 2, 2015

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