I added a new chart today. See below. All my charts are here. – John
Why Case-Shiller Index is Better
Whenever you read about home prices in the United States, it’s most likely you’re reading about the Case-Shiller Home Price Index.
At first, many years ago, I didn’t like the Case-Shiller index. I wanted to see dollars and cents home prices, not an index.
The advantage of an index is that it’s easy to compare home price appreciation in two different cities or between your city and the U.S. as a whole.
How’s your city doing? Better or worse than other cities? Case-Shiller helps you figure that out quickly.
In addition, the typical measures of home prices – median and average home prices – can move around a bit even if prices haven’t changed at all!
For example, if more expensive homes start selling because the stock market is doing great, that would make both the median and average home price go up for the whole city even if home prices really haven’t changed at all.
If some price ranges start selling better than others, that will skew the median and average a bit.
The Case-Shiller Index doesn’t have that problem. Case-Shiller compares the changes in prices of individual homes. If more/less expensive/cheaper homes start selling, it doesn’t affect the Case-Shiller Index like it would the median and average home prices.
U.S. Prices Up 6.3%
Here’s the latest press release coming out of S&P CoreLogic Dow Jones about the latest Case-Shiller numbers.
Nationally, home prices were up 6.3% in February compared to February 2017.
Washington D.C. is still surprising me, coming in with the least home price appreciation over the last year among these 20 cities. If you know why Washingon D.C. home price appreciation in so low, leave a comment.
New Chase-Shiller Chart!
Everybody gives the Case-Shiller Index as if it were a one-month number. I even do it. “The February Case-Shiller Index for ____ was ____.”
In fact, the Case-Shiller Index is a 3-month running average so those February numbers above are really the December-February averages.
Anyway, you need to take that time lag into account when you’re looking at Case-Shiller numbers. The February numbers are really more January numbers.
I just finished making a new chart to emphasize the fact that the Case-Shiller Index is a 3-month average.
Click graph to enlarge
The Big Picture
I’m kinda shocked that I’m the only one I know of who publishes Case-Shiller data on an inflation-adjusted basis. It tells a more real story of home prices.
In this image I went back to 1987 in real terms.
You can really see how the real estate bubble of the late 1980s played out in Chicago, Los Angeles and New York.
(Go here to look at any, or all, of the other 20 cities and the U.S. as a whole.)
It’s wild that real, inflation-adjusted home prices in Chicago are the same as in 1989, nearly 20 years ago.
If you bought a house in Chicago 19 years ago, however, you still did fine.
Obviously, after inflation, the house is only worth what you paid for it 19 years ago but, after inflation, your real mortgage payments have been FALLING all these years.
A dollar today would only be worth about 50 cents in 1989.
If you thought the house was worth the mortgage payment in 1989, it’s an even better deal today, after inflation.
Anyone, of course, who bought in 1989 and still owns the house has refinanced a time or two or three.
And they’ve paid a TON of money in interest to mortgage companies over those 19 years.
Anyway, if they thought it was worth the mortgage payment in 1989 (and they never cashed out any equity), the inflation-adjusted monthly payment is much smaller today even if the real value of the house is the same.
Takeaway. Inflation lowers the real mortgage payment for homeowners with fixed-rate mortgages.
What do you think?
What am I forgetting?
Leave a comment.
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