Another housing bubble?

S&P Case-Shiller 20-City Home Price Index, SPCS20RSA, black line, Real Disposable Personal Income, DSPIC96, blue line, baselined at 100 on January, 2000, measured monthly

I’ve written before about the recent surge of house prices in The United States – much of which is being driven by hedge funds and private equity groups acquiring property at knock down prices to rent. The chart above shows two series: first, the S&P Case-Shiller 20-City Home Price Index (SPCS20RSA, black line) compared to Real Disposable Personal Income (DSPIC96, blue line). To aid in clarity, both series are baselined from 100 from January, 2000 and measured monthly.

Absent of speculative pressures, house prices should track real income; in other words changes in house prices should correspond with increases or decreases in incomes over time. Since house prices hit their post Great Recession low in December, 2011 they’ve rebounded some 13.5% while incomes, over the same period, have only increased 3.5%.

Evidence of a new bubble? Or will this sharp run up in a very short period of time start to lose steam. Even though a significant driver of these increases are institutional investors, some purchases are being undertaken by private individuals; increasing mortgage rates will start to taper this demand, a net negative for housing going forward. Home builder stocks, leading indicators for house prices, are already falling.

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