Housing prices as measured by Case-Shiller rose almost 13% in the year ending February, which was roughly in line with expectations. In nominal terms, housing prices have recovered almost half of the loss they suffered from 2006 through 2011, and they have returned to the levels of 2004. In real terms, prices are still almost 30% below their 2006 highs and are back to the levels of 2002. We are years away from a full housing recovery no matter how you look at it. As the second chart above shows, in real terms housing prices today are up 58% from early 1987 levels. This works out to a 1.7% annualized rate of increase, which is close to the long-term historical norm. Nothing unusual going on here.
The chart above suggests that the rise in housing prices in the past two years is likely to feed into inflation over the next year or so. Housing prices enter the CPI through a circuitous route called "Owner's Equivalent Rent." This is an estimate of how much homeowners would pay to rent the house they own, and it comprises about 25% of the CPI. As the chart above shows, rents have been picking up of late (they are up 2.6% in the past year), in what is basically a lagged response to the rise in housing prices.