Dollar’s Purchasing Power Swoons, but CPI ignores house price inflation.
By Wolf Richter for WOLF STREET.
House prices rose by 11.2% from a year ago, the biggest increase since the peak of Housing Bubble 1 in 2006, according to today’s National Case-Shiller Home Price Index for January.
The index is a good measure of “house-price inflation” because it’s based on the “sales pairs” method, comparing the sales price of a house in the current month to the price of the same house when it sold previously, thereby tracking the amount of dollars it takes to buy the same house over time.
But house price inflation is not included in the Bureau of Labor Statistics’ Consumer Price Index. While about one-third of CPI is based on housing costs, it tracks rents exclusively, rather than home prices. Even the CPI for “Owner’s equivalent rent of residence,” which accounts for about 25% of CPI, is based on homeowners’ estimates about how much their house would rent for. This CPI for “Owner’s equivalent rent of residence” ticked up only 2.0% year-over-year (green line), compared to the Case-Shiller Index, which soared 11.2% (red line).
The Case-Shiller Index was set at 100 for January 2000. So the national index value of 236 indicates house prices have surged by 136% since January 2000, including the plunge in the middle, which CPI for homeowners has risen only 72% over the same period. But for many cities prices have surged far more, as we’ll see in a moment.
So you know what’s going on here: the costs of homeownership are surging, but only a portion are included in our inflation measures, turning CPI as an estimate of the loss of the purchasing power of the dollar into a sad joke.
Los Angeles – the #1 most splendid housing bubble:
Prices of single-family houses in the Los Angeles metro rose by 1.0% in January from December and by 10.8% year-over-year, according to the Case-Shiller Index. The index value for Los Angeles of 321 indicates house prices in the metro have surged by 221% since January 2000, more than tripling in 20 years, thereby making Los Angeles the most splendid housing bubble on this list. Earlier today, I discussed the different trajectories of condo prices and house prices by price tiers.
All charts below are on the same scale as Los Angeles. As we go down the list, the amount of white space above the price area grows, showing that since 2000, the other metros have experienced less house price inflation than Los Angeles, though there was plenty.
The Case-Shiller index for the San Diego metro rose by 1.4% in January from December and by a whopping 14.2% from a year earlier. Prices have more than tripled (+202%) since 2000:
House prices in the Seattle metro jumped by 1.4% in January from December and by 14.3% year-over-year, making it the second fastest annual house price inflation among the Splendid Housing Bubbles here, behind Phoenix (15.8%, below):
San Francisco Bay Area:
This is where condo prices fell back to 2018 levels, but single-family house prices rose 0.2% in January from December and 9.5% from a year ago, having nearly tripled since 2000. The Case-Shiller Index for “San Francisco” covers the Bay Area counties of San Francisco, San Mateo (northern part of Silicon Valley), Alameda and Contra Costa (East Bay), and Marin (North Bay):
In the Miami metro, house prices rose 1.2% for the month and 10.4% year-over-year. Though they’re up 173% since 2000, they remain just a tad below the crazy peak of Housing Bubble 1:
In the Portland metro, house prices rose 1.1% for the month and 10.6% year-over-year:
House prices in the Washington D.C. metro rose 0.8% for the month and 10.7% year-over-year, having surpassed the peak of Housing Bubble 1 late last year:
In the Boston metro, house prices rose 0.8% for the month and jumped 12.7% year-over-year:
House prices in the Tampa metro rose 1.1% for the month and 11.9% year-over-year:
House prices in the Denver metro rose 1.0% for the month and 10.0% year-over-year:
House prices in the Phoenix metro jumped 1.5% for the month and 15.8% year-over-year, making Phoenix the market with the hottest annual house price inflation among the Splendid Housing Bubbles here, ahead of Seattle (14.3%) and San Diego (14.2%):
New York City metro:
House prices rose 0.9% for the month and 11.3% year-over-year. As I discussed earlier today, by price tiers, there were big differences, with low-tier house prices surging by 14.9%, but condo prices remaining in the same tight range for three years. The Case-Shiller Index for New York City covers New York City and numerous counties in the states of New York, New Jersey, and Connecticut. What a wondrous spike over the past six months:
House prices in the Las Vegas metro rose 0.9% for the month and 8.5% year-over-year:
House prices in the Dallas metro – counties of Collin, Dallas, Delta, Denton, Ellis, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant, and Wise – rose 0.8% for the month and 9.2% year-over-year, and are up 110% since 2000, meaning house price inflation totaled 110% over the past 20 years. In the remaining handful of cities on the 20-city Case Shiller Index, the 20-year house price inflation has been less than 100%, which makes Dallas the last entry on this list of the most Splendid Housing Bubbles:
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