Although the Case-Shiller home price index for January and February was slightly lower than it was at the end of 2009, the message was somewhat different from a government report last week on the producer price index for single-unit residential construction through March 2010. That index measures the average change over time in the cost of materials for making new homes. The chart below displays the index for each month since January 2008. The index has increased 3 percent since last summer, when it was 5 percent off its high.
The producer price index is of economic interest because it is an important determinant of the prices of existing homes. Few people want to pay more for an existing house than they would pay for having one built new. As a result, the housing producer price index is an important ingredient for economic forecasts of housing prices.
I’m not going to kid you; I find it hard to cheer higher prices so I guess this qualified good news. As usual Casey has a unique way of looking at things that cuts through the clutter.