Standard & Poors compares the Case Shiller Composite 10 Home Price Index to CPI and shows home prices are at 2001 home prices adjusted for inflation.
Like any great statistics, it is as accurate as the information you plug-in to it. I believe the Case Shiller Index is accurate, but I question the accuracy of the CPI. But it is still a fair benchmark.
The real benchmark to gauge home values by is Rents. That is an accurate gauge because there is a return on investment and that number is not manipulated by statistics. Historically speaking, home values have paced inflation – but at the core of that inflation is Rents.
So the future of home values will get back to Rent, which can be somewhat tracked by CPI. Do you think Inflation will increase in the future? If so, then you will likely see home prices track upwards with inflation. Is food and gasoline going up or down in price? (that is inflation..)
I ran this chart back in October, however I did not adjust home prices for inflation. I just ran the Home Prices alongside the CPI.
Check out Standard & Poor’s article to see their chart.
- Will Home Prices Pop After They Hit Bottom? (Hint: Probably Not) (blogs.wsj.com)
- Real House Prices and House Price-to-Rent (calculatedriskblog.com)