The recovery of the US housing market continues, with the release of the Case-Shiller 20-city house price index last night recording its 14th consecutive monthly gain, with prices rising by a seasonally adjusted 1.0% in May, by 12.1% year-on-year, and by 14.7% since values bottomed in January 2012. However, house prices still remain -24% below peak, according to Case-Shiller (see next chart).
The next chart, which comes from Bill McBride at Calculated Risk, shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 for all the Case-Shiller cities in nominal terms.
At the national level, real inflation-adjusted US house prices are back at early 2000 levels, according to McBride:
Whereas prices-to-rent are also at early 2000 levels:
The mood of US consumers has also followed prices upwards. Both the University of Michigan and Conference Board consumer sentiment indexes have registered big increases lately, tracking at or near their highest levels in more than five years (see next chart).
There is typically a strong relationship between consumer sentiment and house prices, suggesting that price momentum is likely to be maintained.
Meanwhile, US housing construction typically follows house prices, suggesting the surge in price growth and sentiment will continue flowing into the real economy (see below charts).
So for now, it’s all systems go for the US housing market, which is experiencing strong growth in prices, sentiment, and construction, albeit from a low base.
However, question marks remain over the sustainability of the recovery, given the recent 1% rise in the 30-year mortgage rate, which adversely affects the cost of financing and reduces the size of the loan that can be taken on by a potential buyer for a given monthly outlay (see next chart).
Time will tell whether the recovery will continue apace or get snuffed out by rising financing costs.
