The Figure 1 displays the difference between the CPI and the housing index (both are seasonally adjusted) as reported by the BLS on July 15, 2011. The current trend is negative, i.e. the CPI grows slower than the index of housing. Due to the leading role of energy in the current decrease of the CPI, the housing index will demonstrate a faster growth (or slower fall) than the CPI through 2011 and the difference in Figure 1 will likely approach the zero line.
Housing price index. Quarterly update
This is a quarterly update. The housing index comprises approximately a half of the headline CPI. Three months ago we reported that the price index of housing had been decreasing since the end of 2008 relative to the overall CPI. In May 2011, the difference reached its peak and showed a slight decrease. In June, the difference fell by 0.6 points. This makes May 2011 a pivot point in the behavior of the housing index relative to the CPI. The latter fell by 0.5 in June while the housing index grew by 0.13, with the average increment during the past 12 months of 0.23. Therefore, the housing index is not accelerating and the turn in the difference is caused by the fall in energy price and in the headline CPI, as we predicted in April 2011.
Figure 1. The change in the trend started in 2009. After the turn in May 2011, the current trend is negative, i.e. the CPI grows slower than the index of housing.