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Home_Built_DollarsThis morning’s housing headline was from the Case/Shiller 20-city composite index data for May. The data showed that home prices in May were up 4.9% from a year earlier, slightly slower than the annual growth of 5% seen in April. City-by-city look at house prices – MarketWatch.

Meanwhile, the U.S. Consumer Confidence Index took a sharp and surprising drop in July. U.S. consumer confidence falls sharply in July to 10-month low – MarketWatch. With a fair chance that Donald Trump or one of the economic weaklings in the Republican field could become President in January 2017, this seems understandable. Others attribute the change to the negative news out of Greece and China which has caused scary volatility in the stock market.

The volatile, and relatively small, segment of the housing market represented by new home sales also took a turn for the worse in the latest reports. New single-family home sales in the United States fell in June to a seven-month low, and May’s sales were revised sharply down. New Home Sales Slump to Seven-Month Low – The New York Times.

“Nationally, single-family-home price increases have settled into a steady 4%-5% annual pace following the double-digit bubbly pattern of 2013,” said David Blitzer, index-committee chairman at S&P Dow Jones Indices. Home-price growth is expected to slow over the next couple of years, he added.

“Prices are increasing about twice as fast as inflation or wages,” Blitzer said. Inflation is not expected to hit 2% for at least another three years. Ultimately, housing prices cannot continue to increase more quickly than wages.

The upshot is that we should expect housing prices to increase 4% or less annually over the next decade. That’s a nice, healthy return. But more importantly, a house is a place you live your life. It’s a consumer item perhaps more importantly than an investment. The creator of the Case/Shiller indices agrees: The Housing Market Still Isn’t Rational – The New York Times.