Key Highlights

  • According to CoreLogic Case-Shiller Home Price Index,home prices soared to +9% y/y at fastest rate in 7 years
  • Home prices in all 20-City Index increased at least +6.8%
  • Average home prices across US rising at 4.5 times Fed’s inflation target

Is There a Disconnect Between Soaring Home Prices and the Rate of Inflation?

 Regardless of where one lives in the US, home prices rose +9% y/y in 2020 at the fastest rate in 7 years, according to the latest CoreLogic Case-Shiller Home Price Index.  Meanwhile, the country’s inflation rate has gained +1.6% during the last 12 months.

This only makes sense because the US Bureau of Labor Statistics bases its inflation estimates, or the Consumer Price Index (CPI), on the non-market rent index in the country.  The rent index has increased +2.5% in the last twelve months.

If, according to Tyler Durden writing for zerohedge.com, the Bureau of Labor Statistics referenced actual home prices rather than rent prices, the CPI would have registered a +3% gain in the last 12 months.

Home Prices Increased More than +9% y/y

 This latest CoreLogic Case Shiller Home Price Index (HPI) indicated that home prices not only gained +9% y/y, they also increased at the fastest pace in 7 years. On top of that, this HPI indicated that all twenty of the cities represented in its 20-City Index increased by at least 6.8% y/y with home prices in Phoenix rising the most at 13.8%.

Average Home Prices Across US Rising at 4.5 Times Faster than the Fed’s Inflation Target

 Because the non-market rent index is the core reference point determining the country’s inflation rate rather than market-driven home prices, the average home prices in all of the US are rising at 4.5 times the Fed’s inflation target.  Even the cheapest housing markets in the country are seeing home prices rise more than 3 times the Fed’sinflation goal.

Such rapid acceleration in rising home prices is not typical of patterns expressed in the last two recessions.  During the 2001 recession, home prices slowed by one-third and during the Great Recession of 2007-08, home prices fell over 12% nationwide, the largest such decline since the end of World War II.  Certainly increasing home equity was also not typical of neither the 2001 nor the 2007-08 recessions.

2020 Recession Has Unique Features

 The 2020 pandemic-inspired recession of 2020 has had economic and financial features usually found in economic recovery cycles…features such as rising consumer price inflation, rising home equity, rising home prices and increasing levels of corporate debt…not recessionary cycles.

Could these current features now carrying over from the 2020 recession become part of featured solutions in an economic recovery in 2021 and beyond?  Only time will tell.

Thanks to zerohedge.com.

 

 


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