Housing prices according to the Case-Shiller Housing Price Index for the 3rd quarter of 2012 here have clawed their way back to within 3% of the 20th century's historic high before the housing bubble.
The index has climbed in 2012 from 124.48 at the end of March to 132.97 at the end of June, and now sits at 134.97 as of the end of September 2012, a rise of 8.4% in just six months.
Prices at this level are high by historical standards, if one ignores price action during the housing bubble. Excepting that period, the high water mark for housing prices in the 20th century was reached on Sep 30, 1989 at the level of 138.54 on the index, 8 years before the tax law was changed to make it possible to churn real estate capital every 2 years, which was the real fuel for the housing bubble.
From the 1950s right up to the end of 1997, prices on the index hewed closely to 120, rising above that level and below it in a cyclical manner in the absence of meddling with housing and tax law. But after 1997 prices became unhinged and rapidly increased, shooting above the upper range limit of 140 in September 2000 on their way to the bubble peak of 218.72 in December 2005. We all know the sorry aftermath of that.
Today prices for housing assets are very high by historical standards. The new fuel for them is Federal Reserve zero interest rate policy, which represents violent meddling with interest rate markets designed in part to help homeowners refinance existing mortgages and buyers buy at affordable rates. This is surely frustrating and destructive at the same time, as any person without a job needing to refinance and any person needing interest income can tell you.
While it is difficult to predict what the new normal should look like with respect to future housing price trends as the market adjusts to the exploded bubble and current housing policy and tax laws, prices supported by federal manipulation cannot be real.
The country desperately needs a free market in housing, but it doesn't have one.
