uploads///Case Schiller

The Case-Shiller Index Is 10% below Its 2006 Peak

By

Jun. 29 2016, Updated 6:19 a.m. ET

Real estate professionals watch the Case-Shiller Index

The Case-Shiller Index is the most widely quoted index of real estate values. You could consider it the Dow Jones Industrial Average of home price indices.

Keep in mind as well that real estate values are big drivers of consumer confidence and spending. So, they have an enormous impact on the economy.

Article continues below advertisement

Home prices continue to climb

In April, the seasonally adjusted Case-Shiller Index rose by 1% month-over-month. It’s up by 5.4% year-over-year. Seven cities—Denver, Dallas, Portland, San Francisco, Seattle, Charlotte, and Boston—recouped all of their losses from the Great Recession and are setting new highs. Three cities—San Diego, San Francisco, and Cleveland—reported monthly declines. Overall, prices are still about 10% below the peak set in the summer of 2006.

House prices rose faster than incomes

Since home prices bottomed out, we’ve had a couple of years of low double-digit returns in prices. Historically, incomes and house prices have correlated very closely. Once the real estate bubble started inflating in 2000, house prices broke out of their historical range of 3.2x–3.6x incomes. They peaked at 4.8x, fell to about 3x at the bottom, and rebounded to 4.2x. This means that home price appreciation will have to be driven more by wage growth going forward.

Home prices aren’t extremely important to agency REITs like Annaly Capital Management (NLY) and American Capital Agency Corporation (AGNC) because these funds invest in mortgage-backed securities that are guaranteed by the federal government.

However, home prices are extremely important to non-agency REITs like Newcastle Investment Corporation (NCT) and Redwood Trust (RWT). Investors interested in trading the mortgage REIT sector through an ETF should look at the iShares Mortgage Real Estate ETF (REM).

Advertisement

More From Market Realist

  • Open sign on a sidewalk
    Macroeconomic Analysis
    Top Reopening Stocks to Play the Shifting Market Sentiment
  • Morgan Stanley sign and stock numbers
    Macroeconomic Analysis
    Morgan Stanley's Buyback Stock Picks in 2021
  • Black Wall Street sign is sign of ethical investing
    Macroeconomic Analysis
    Ethical Investing Stocks and Funds for Your 2021 Portfolio
  • New York City skyline and Goldman Sachs logo
    Macroeconomic Analysis
    Goldman Sachs: Options Trade Picks to Play Earnings Season Volatility
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.