Home Prices Rise at Fastest Pace in 15 Years

Mish

Year-over-Year prices are up 11.19%. That's the highest annual rate of growth since February of 2006 also up 11.19%.

Home Prices Year-Over-Year

Case Shiller Yer-Over-Year Percentage Change 2021-01

Let's step back a bit to see when and how these bubbles started.

Home Prices 2000-Present

Case Shiller Composite Indexes 2021-01B

Note the acceleration in home prices that started in 2000. 

It reflects then Fed Chair Alan Greenspan goosing the stock market over Y2K fears then accelerating the bubble with low interest rates fueling the housing bubble that collapsed on 2006.

Fed Chairs Ben Bernanke, Janet Yellen, and now Jerome Powell all employed the same tactics to goose housing and the stock markets.

In Search of Inflation

Powell wants inflation. He cannot see what is right in front of his nose. But the Fed does not consider home prices as inflation.

For discussion, please see Easy Money Quote of the Day: Fed "Won't Take the Punch Bowl Away"

And as discussed previously, Inflation is Poised to Soar, 3% by June is "Almost Certain"

I will do a follow-up to this post calculating real interest rates which are behind the booms and the busts.

Mish

Comments (39)
No. 1-12
Sechel
Sechel

Home Prices don't cause inflation, not since 1983 anyway

Quanta
Quanta

Indirectly they do.

KidHorn
KidHorn

I would guess the vast majority of the housing inflation is in the suburbs. People are fleeing inner cities.

Sechel
Sechel
Mish
Mish

Editor

Home Prices never cause inflation.
They are a result or an indication of it.

Realist
Realist

Fiat money is chasing many things today; housing, stocks, crypto, nft, etc. Though interestingly, not gold.

Winston7
Winston7

Why is it that the Fed can generate increases in asset prices such as housing but the BOJ has been much less successful with far more firepower?

Eddie_T
Eddie_T

Looks like a decent chart to me. Basically one bad year in the last 20. Nothing ever goes straight up.

Over the last 20 years the median home price here has gone up 15%.

Real gains do occur, but the inflation multiplier makes them look small most of the time.

Real gains are happening here now, as land prices have gone up and material prices have gone sky high and demand has gone off the charts. If CPI is 3% and Austin home price is up 15%, then you can conclude that real gains over the past year have been roughly 5%...which is very high historically speaking. In more ordinary times I would expect inflation to push price up more than real gains. But both do matter.

If building costs go up a lot, and the number of buildable lots dwindles, and prices go up because of that, that is what I've been taught is a real gain. It costs more now to build that same median house than it did a year ago

But the real attraction of real property is the tax angle. For people with a yearly earned income of half a million or more, I don't see any better asset to hold long term. You get used to the lack of liquidity. I've been doing RE as an investment since the mid-90's. I've done three 1031 exchanges over that time, deferred the capital gains into perpetuity, and the asset value will convey tax free to my heirs.

When you add in mortgage leverage and amortization leverage, it's so much better than any other tangible asset that I can't imagine why more people don't take advantage.

Eddie_T
Eddie_T

I'm sitting right on my stop on the gold fun trade, and looking for any good bounce to step out. I knew that technically there was a chance gold would drop back down and re-test 1700, but we are barely holding the bottom of the last daily cycle low.....if that .....it doesn't look great to me.

I got back from vacation and got very sick. COVID test came back negative.Flu test came back negative.

Turns out I got a terrible urinary tract infection from sitting in the hot tub at the ski hotel. I've missed two days of work, which is more than I've missed for illness in 10 years. I'm very grateful to my wife and daughter for taking care of me.

CzarChasm Reigns
CzarChasm Reigns

Me thinks proficient bubble blowers are less inclined to be concerned when they pop.

Fed members = blowhards.

Agave
Agave

The Dems are talking about repealing the 2017 SALT tax, which limited deductions of state and local taxes on federal returns to $10,000 per year. In high housing cost states, that could have a positive upward bias on housing costs, as you can afford to pay more for housing purchases if you can deduct more of this from federal taxes.


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