Recently, I looked at the Shiller Real Home Price Index, discounted by general CPI, discounted by Shelter CPI, and in individual cities, discounted by local CPI owner equivalent rent inflation.
Click on the link, and you will see the two graphs there. On the national level, using shelter inflation instead of general inflation brings down the relative price of homes considerably. And, during the recent period, where divergence between cities has been strong, we can see that in many parts of the country, home prices have been reasonable, while cities like San Francisco are extreme outliers.
Here I have added the other cities which have both Case-Shiller price indexes and monthly CPI measures of local owner equivalent rent inflation - a total of 12. All are indexed to 1995, or to the earliest date available.
Generally, these show the same pattern, with various cities falling somewhere between Dallas and San Francisco. Case-Shiller tends to measure Closed Access type cities, so they are heavily represented here. Most of the secondary regional centers and rural areas across the country (outside of California and New England) look like Dallas and Atlanta.
At the national level, before the 1950s, the home price index had tended to range between 85 and 115, except for during the interwar period, where it was lower. Using shelter inflation to adjust the index since then, it had remained in that range until the late 1990s, and was, in fact, at the bottom of the range when the housing boom started.
So, we can see that now there is a split. The open access and Midwestern cities, adjusted for local rent inflation, have continued to move in that range, moving back to the bottom of the range after the bust. The Closed Access cities tend to be far above that range. And, the other cities moved well above that range during the boom and are now in the middle of the long term range, along with the national average.
The influence of the Closed Access cities on the national average is evident here by the fact that Seattle follows closely with the national measure in both graphs. Seattle is sort of at the mid-point between fully closed access and a functional housing market. It will be interesting to see if they can manage to maintain a healthy tech industry and an open access housing market. It could go either way. But, we can see here what a chimera the national measure is. Seattle's housing market is nothing like the market that most American's experience between the coasts.
Most Americans live in the housing market of the green and grey lines. The high rents and higher prices of the Closed Access cities cause them to have an outsized effect on a value-weighted average of the country's home values. Also, the vast majority of new homes were built in places representative of those green and grey lines.