Case-Shiller: Making Middle America Great Again?

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Includes: ITB, IYR, PKB, XHB
by: Bespoke Investment Group

Today's Case-Shiller Home Price Index results showed home prices across the country rose by over 10% (annualized) in Q4 2015, one of the best paces in years. Versus December of 2014, the rate of growth was about half as high thanks to soft prices in the middle of the year. Home prices have not been rising inexorably in the same way as they did for years leading up to the global financial crisis; rather, they've been quite volatile but the overall trend is higher.

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Overall, this is healthy, as it represents a normal asset market. Home prices rising 10% per year for almost a decade (and accelerating steadily that whole time) don't represent a healthy balance of supply and demand. The more volatile home prices since the post-recession move up is much more reasonable.

One interesting detail in the data: "real America" appears to be clawing back underperformance in home prices versus coastal cities. New York is an excellent example. Below, we chart the relative prices of NYC homes versus broad national home prices (the 10- and 20-city Case-Shiller composites).

Both series are indexed to 100 as of the start of the 20-city composite. After soaring relative to the rest of the country in the 2000s and during the housing crash, New York housing is back to the previous relative price level we saw in about 2000. In a certain sense, home price appreciation outside major cities is "making middle America great again."

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