The Case Shiller home price data for June (which reflects a moving average of prices several months before) ticked up, and now show that housing prices, in real terms, have been essentially flat to slightly higher for the past 16 months. The top chart shows an index of 20 housing markets, whereas the bottom chart shows an index of only 10 markets but over a longer time frame. Both tell the same story: increasingly, it looks like the housing market has found a new equilibrium clearing price level.
Housing skeptics are anticipating (as they have been for most of the past year) that this run of relatively good news will soon end, however, thanks to the recent expiration of the government's subsidy for new homebuyers. Those concerns may prove well-founded, but then again they may not. We do know that sales activity dropped significantly in the months following the data included in the Case Shiller release, but we don't know much about how prices behaved in the past few months.
I continue to think that prices have fallen enough to at least hold steady at current levels for the foreseeable future. As the top chart shows, there has been a 33% decline in inflation-adjusted housing prices from their 2006 peak, and that is by far the biggest downward price adjustment in nationwide housing prices in my lifetime. In addition to a one-third decline in home prices, the cost of borrowing money to buy a house today has dropped by 30% over the same period, since 30-yr conforming mortgage rates have fallen from 6.7% in 2006 to 4.7% today. Combine those two price declines and you get an effective decline of 54% in the monthly cost of buying the typical house.