Nick Timiraos reports,
the [Federal Housing Agency home price] index shows U.S. prices now standing just 6.4% below their previous peak in April 2007.
…The Case-Shiller national index, which is set to report its own measure of July home prices next Tuesday, showed that home prices in June were 9.9% below their 2006 peak.
1. Overall, consumer prices have risen about 15 percent since 2007, so you might say that on an inflation-adjusted basis home prices are more like 20 or 25 percent below their 2007 peak.
2. However, even on an inflation-adjusted basis, house prices are higher than they were in late 2003, by whichi point cries of “bubble” already were being heard.
3. If I were Scott Sumner, perhaps I would say that this suggests that the 2007 prices were not really a bubble. Indeed, the real anomaly was the crash in house prices in 2008-2009, due to tight money. But I am not Scott Sumner.
4. The case that we are in another bubble strikes me as weak. It is certainly is not a sub-prime lending phenomenon. Two phrases that I hear a lot in casual conversation with real estate folks are “all-cash deal” and “foreign buyer.”
5. Even if house prices were to fall sharply again, my guess is that there would be many fewer loan foreclosures. Lenders are taking on much less risk, and instead home buyers are taking on more of it.
6. It seems to me that we are much closer to full recovery in the housing market than we are to full recovery in the labor market. Does that not pose a problem for the theory that the recession was mostly an aggregate-demand phenomenon caused by the loss of housing wealth?
7. Again, today’s economy feels so much like 2003 and 2004. Very low r, seemingly below g. Last decade, Bernanke labeled this a “global savings glut.” This decade, Larry Summers calls it “secular stagnation.”
8. In June of 2004, I wrote Bubble, Bubble, is there Trouble? arguing that low r was the central economic puzzle, and that given low r, housing prices were not out of line. I have been excoriated since then for failing to call the housing bubble. In 2009, that excoriation seemed warranted. Today, it seems like you could change the date to June of 2014 and re-print it.