Housing Bubble; Home Price Data Suggests Otherwise, Says Deloitte

Housing Bubble? Home Price Data Suggests Otherwise, Says Deloitte

Deloitte Research Leading Index of Consumer Spending.

Rate of Home Price Appreciation Slowed in February, March and April, According to Deloitte Research’s Leading Index of Consumer Spending

Despite broad speculation about a housing bubble, real median home prices were up a modest average of 1.8 percent during February, March and April compared with a year earlier, according to Deloitte Research’s Leading Index of Consumer Spending. As recently as December 2004,
real home prices were rising at double-digit rates.

“There has been much discussion recently about a housing bubble, but the
truth is that home price appreciation has slowed considerably in the past
three months. The time to talk about a bubble was last December,” says Carl
Steidtmann, chief economist of Deloitte Research and author of the monthly
index.

“Consumer spending growth in the summer months will be largely dependent
on the direction of home prices and job growth,” continued Steidtmann. “As
job growth continues to accelerate, we should see a corresponding pickup in
real wage growth.”

Highlights of the index, which tracks consumer cash flow as an indicator
of future consumer spending, include:
* After a year of modest declines, real wages now appear to be declining
at an accelerating rate, as rising energy prices push up the cost of
living and rising benefit costs hold down wage increases. In May, real
wages were down 1.1 percent from a year ago.
* Initial unemployment claims fell in May by approximately 10,000 claims
per week, helping to offset the weaknesses in other components of the
index.
* Home price appreciations have slowed sharply, despite volatile housing
markets on the East Coast and in Florida.
* The tax burden has risen slightly since March 2004 as continued economic
growth pushes some households into higher income brackets.

The index, comprising four components — tax burden, initial unemployment
claims, real wages and real home prices — fell in May to 3.80 percent, from a
downwardly revised gain of 3.98 percent in April.

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SOURCE Deloitte
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