The US Cities with the Biggest Housing Bubbles

by Wolf Richter, Wolf Street:

Extraordinary home price inflation in all its beauty.

The S&P CoreLogic Case-Shiller National Home Price Index for August was released today. The not-seasonally-adjusted index jumped 6.1% year-over-year. Yesterday we learned that “real” disposable income for US consumers inched up only 1.2% in September over the 12-month period, and that on an individual basis — on a “per capita” basis — it edged up only  0.56%.

Home price increases have been outrunning disposable incomes for years. The Case-Shiller index has now surpassed by 5.7% the crazy peak in July 2006 of Housing Bubble 1:

US-Housing-Case-Shiller-National-Index-2017-10-31aa.png

Real estate prices are subject to local dynamics. But they’re also massively impacted by monetary policies, particularly in places where the money flows to, which creates local housing bubbles. When enough local bubbles occur simultaneously, it becomes a national housing bubble – as demonstrated in the chart above.

Below are the local housing bubbles of major metro areas in all their magnificent beauty:

Boston:

The index for the Boston metro rose again on a monthly basis and has surged 6.9% year-over-year. During Housing Bubble 1, it soared a blistering 82% from January 2000 to October 2005, before the plunge set in. But after years of price surges, it is now 13% above the peak of Housing Bubble 1:

US-Housing-Case-Shiller-Boston-2017-10-31.png

The Case-Shiller Index is based on a rolling-three month average; today’s release was for June, July, and August data. Instead of median prices, the index uses “home price sales pairs,” for instance, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and incorporate other factors. The index was set at 100 for January 2000. An index value of 200 means prices have jumped 100%.

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