Was there ever a bubble in housing prices?
Housing prices have been on a tear over the last five years. The Case-Shiller national composite has risen 35 percent since its post-crash bottom in 2012, and is currently just above its pre-crisis peak, set in the spring of 2006. This has R Street’s Alex Pollock wondering whether the Fed has re-inflated the real estate bubble.
In the wake of the bubble, the Federal Reserve set out to create renewed asset-price inflation. It certainly succeeded with commercial real estate – a sector often at the center of financial booms and busts.
Commercial real estate prices dropped like a rock after 2007, far more than did house prices, falling on average 40 percent to their trough in 2010. Since then, the asset price inflation has been dramatic: up more than 100 percent from the bottom. In inflation-adjusted terms, they are up 83 percent.
The Federal Reserve also succeeded in promoting asset-price inflation in houses. U.S. average house prices are also back over their bubble peak—by about 2 percent, in this case. They have rebounded 41 percent from their 2012 trough. In inflation-adjusted terms, house prices a have climbed back to the level of 2004, when we were about two-thirds of the way into the bubble.
I don’t necessarily agree with Pollock’s framing, but he does have some sweet looking charts, which I am going to share, and then give my slightly different take on.