1. Home pricesAccording to the S&P/Case-Shiller Home Price Indices, composites of housing prices in 10 and 20 major U.S. metropolitan areas have recently recovered to levels originally reached in early 2004. This is the result of a double-digit percentage rally over the past year. Prices were also rising sharply back in 2004, but in that case they had already been on the rise for about seven years. In other words, home prices may once again be rising, but the market is still much earlier into the rally than it was in 2004.
2. InflationWhile home prices may seem to be on par with 2004 levels, there has been roughly 23 percent of inflation since then. On an inflation-adjusted basis, housing prices have still lost ground since 2004. This could be another argument for why the housing market is still reasonably priced at this point.
3. Mortgage ratesCurrent mortgage rates are up to about 4.5 percent, having risen sharply since early May. In the context of recent history, today's mortgage rates may seem a little high, but back in 2004 they averaged 5.84 percent. This makes buying a home more affordable now than it was in 2004. Affordable interest rates can cut both ways when it comes to stabilizing housing prices. Reasonable mortgage rates help people meet their mortgage obligations, but they can also help fuel a bubble in prices. In any case, the dynamic may change yet again if mortgage rates continue to rise.
4. Investment environmentThe climate for stocks is similar now to what it was in mid-2004. Then, the stock market was on a bit of a roll, having climbed by nearly 40 percent in less than two years. However, this was a bounce-back from a drop of more than 50 percent previously. Today, the stock market is on a run lasting more than four years that has seen prices more than double. Once again though, that rally represents the market fighting its way back after prices fell by more than half.
Deposit conditions are also somewhat similar. Short-term CD rates had dropped precipitously prior to bottoming out at 1.03 percent in early 2004. Today, recent years have once again seen a steep drop in CD rates, driving them even lower to 0.16 percent as of mid-2013.