Housing vs. Equities

Case Shiller was reported this morning up 1.2% y/y for July.  The datapoint serves as confirmation that housing prices are recovering.

Below is a chart of Case Shiller vs. the S&P 500 since 2000.  It shows that even though housing prices may be starting to turn, they still have quite a ways to climb.  Also it highlights that even despite the housing bubble burst, housing prices have still risen since the turn of the century and have thus outperformed equities.

Case Shiller Index Chart

Yesterday the latest Case Shiller data was reported for May, which showed that housing prices had risen 2% m/m but fell 1% y/y.  Still, the May data confirms the chatter that housing may finally be turning.  Housing is arguably the most important asset class in the US economy today.  If housing prices rise, not only does the banking system get a lot healthier, but the consumer's balance sheet becomes repaired too as debt/equity falls.  While housing prices may be rising slightly, there's still some way to go for anyone who bought a new home or refinanced in 05/06/07 to get above water.