Home Prices Corrected for Inflation at 2001 Levels

Take inflation out of home prices and we’re back to 2001 — ten years ago.  The chart shows the S&P/Case-Shiller 10-City Composite Index in nominal (or current dollar) terms along with the index deflated  by the Consumer Price Index.  Looking at the dashed orange lines near the lower right hand corner, one sees that prices haven’t gotten much beyond where they were in early 2001.   In fact, allowing for a dip in home prices in the 1990s when inflation rose faster than houses, we’re almost back to 1989.

Back to 2001

This shouldn’t suggest that home prices never rise faster than inflation any more than the arguments for investing in your home — they’re not making any more land or everyone has to live somewhere — should be ignored. Rather, the run-up and the run-down in prices in the 2000s didn’t do much for average home values while they wreaked havoc on the economy.  Is buying a home a good idea?  There isn’t a general answer to the question because it depends on the economy,  the real estate market and most of all on the needs, desires and finances of the potential buyer.