Among the recent comments were a couple of requests to publish an inflation adjusted version of home prices; the chart show the S&P/Case-Shiller 10 City index and the same index adjusted for inflation with the U.S. CPI. The adjusted series was rebased to have the same value as original series in January, 1987. The adjusted series is in “real terms” meaning that the effects of inflation have been removed and the prices index is a better measure of the true changes the value of homes since 1987.
In real terms, prices rose less and fell more. The real series peaked in December, 2005, up 90.3% from the beginning of 2000. In contrast, the unadjusted (or nominal) price index peaked six months later in June, 2006 with a gain of 126.9% from 2000. The difference reflects both the slight difference in the time frames and inflation. On the way down from the peak, the real series fell more; in effect inflation made houses seem a bit more expensive than they really were. From its peak the realseries fell 40.1% to a recent low in Apri, 2011. The nominal index made its bottom much earlier in April, 2009 after falling 33.5%.
Despite the differing numbers, the general picture of boom and bust is roughy the same. Over brief periods of a year or two in an environment of low inflation the differences between real and nominal aren’t very dramatic. However, the real data shows that the damage from the housing bust is slightly worse than when seen through inflation tinted glasses.