After a strong summer, home values have been charting a rough course in recent months. Between CoreLogic’s HPI, LPS’ home price index and Radar Logic’s RPX, home values in the most recent data sets declined between 1 and 2 percent monthly and 3 to 4 percent yearly.
That narrative continued with last week’s Case-Shiller, which showed home values declining 1.2 percent from September to October and 3.4 percent year-over-year. Tricky numbers, to be sure, but what if the Case-Shiller, and the other indices, used real prices, rather than nominal prices, in their findings?
Bill McBride of Calculated Risk poses that question on a monthly basis with each release of the Case-Shiller, and his results are not encouraging.
Real prices differ from nominal prices in that they reflect inflation. So rather than using the current market price, which would be nominal, a real value has been filtered through the Consumer Price Index, the BLS-produced measure of inflation. Because of that, real prices are always lower than nominal and, more times than not, a more accurate portrait of economic conditions.
Such is the case with McBride’s analysis of home values. Though the nominal Case-Shiller, as originally released by Standard & Poor’s, shows that home values have reverted back to Q4 2002 levels, the real Case-Shiller shows an even more dramatic decline in prices.
McBride writes, “In real terms, the National index is back to Q1 1999 levels, the Composite 20 index is back to April 2000, and the CoreLogic index back to March 2000.”
So all of the gains in housing values from the last decade have been reversed by the most recent downturn. However, there is a definite bright spot – though values have declined in recent months and may decline over the next few, McBride and others predict that the worst is behind us.