Robert Shiller is the author of the book Irrational Exuberance - in a recent interview he points out that housing has had a decade of steady gains and rising prices may be coming to an end. He has his own website where he shares historical market data used in his book showing home prices since 1890-Present here: http://www.econ.yale.edu/~shiller/data.htm
Shiller created the Case Shiller Home Price Index. The Case-Shiller Home Price Index measures house price inflation by looking at repeated sales of the same single-family houses. Here is the graph from the FRED website (source). As of writing this article the data goes up to July 2023 and the index is at 310. To put this into perspective before the 2008 real estate crash the index was at 184 so we are almost 2x that prior high today. Also note that since March 2020 the slope of the curve became much steeper.
What could be a possible reason for the increase? One data point that is useful to look at is the money supply in the economy. If the Federal Reserve prints more money then who gets this new money determines what asset classes will absorb it and have higher price levels.
This chart here breaks down the Case Shiller home price index into the specific USA metros. It may be a little hard to see here with the embed so feel free to check it out here on this website:
Does this mean that now is not a good time to buy real estate?
One other chart I like to look at in thinking this through is the median home priced in ounces of gold or better yet the case shiller index in gold. I used to have to calculate this out myself but a neat website does this at: http://pricedingold.com/us-home-prices/
From this chart going back to 1985 we see that homes were most expensive in 2005 with the index rising to 140 and then crashed down to about 25 in 2012. Since then they have been around 40 which is way below the peak.
When we look at both the case Shiller index and the index priced in gold going as far back as 1890 we get this chart
This is an interesting chart because we can see the time frame of the Great Depression from 1929-39 during which home prices were around
So if you just looked at the case Shiller index by itself you might think that homes are really overpriced right now but this chart communicates that really what is happening is inflation in the economy with the increased money printed by the federal reserve bank. If you’re holding cash it may be wise to invest it into hard assets which tend to perform better in inflationary periods. I would however avoid REITs which lots of debt maturing soon as they will have to refinance at much higher rates.
And one more chart from PricedinGold.com
The price of a home is within reason when priced in gold.
The other thing to think about is the size of the average household which has been declining steadily since 1960. If fewer people are having children that means they have more money for other things like investing into real estate - it’s certainly something to consider as it’s an underlying assumption that households may be stable though out time when reality is showing that they are not.
Here is FRED graph showing different home price indexes which follow a similar trend with a big uptick after 2020