The evidence continues to mount in support of the theory that we have seen the bottom not only in residential construction (up 44% since Feb. '11) but also in housing prices, as the chart above shows. Both the Case Shiller and the Radar Logic indices of housing prices are up in the year ending last June (+0.5% and +2.8%, respectively). Moreover, the Case Shiller index for this past June was almost identical to its level in June, 2009. The housing market has now suffered through almost seven years of the most wrenching adjustment imaginable, with prices and construction plunging over a four-year period and then consolidating over the past three years. That's plenty of time to work off a considerable amount of excess inventory and to reprice homes to appeal to new buyers.
Mark Perry has some interesting stats on how impressive the recent numbers have been here.
There are still many millions of homeowners who are underwater, and millions of foreclosed properties yet to be sold, but the dynamics of the housing market are changing. In the past year or so, we've passed through an inflection point in which conditions have shifted from a buyer's market to a seller's market. Now, thanks to incredibly low mortgage rates, housing prices are more affordable than ever before. The psychology of the marginal buyer is slowly beginning to shift: can he or she can snag that home for less if they continue to wait, or is it better to offer full price right now? There is already plenty of anecdotal evidence of bidding wars in some areas, and that could spread to more markets over the next year.
UPDATE: The purpose of this last chart is to illustrate how home prices have come back into line with rents, further bolstering the view that market forces have moved the housing market back into a sort of equilibrium.
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