More than ten years after the historic September 11 terrorist attack on Twin Towers in New York, home prices have risen less and has fallen more in “real terms.”
This was the findings of S&P/Case-Shiller 10 City index in response to public request 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”, indicating that the effects of inflation have been removed and the home 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,” said David Blitzer, Chairman of the Index Committee, S&P Indices.
The real series peaked in December, 2005, up 90.3 percent a year before the September 11 attack.
In contrast, the unadjusted (or nominal) price index peaked six months later in June, 2006, gaining 126.9 percent 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,” Blitzer said.
From its peak the real series fell 40.1 percent to a recent low in April, 2011. The nominal index made its bottom much earlier in April, 2009 after falling 33.5 percent.
Blitzer added: “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.”
Blitzer’s statement followed his expression of uncertainty toward the viability of buying a house amid the present condition.
“Not just because of uncertainties, of which there are many, but because the question depends on far too many variables: location, financing, the buyer’s financial strength to mention only three,” he said.
“The unasked question is have prices bottomed out. Here there might be a hint: as noted in last week’s comments about the June data, prices in eight of the cities we follow have stayed above their lows for two years. In some places the lows appear to be holding.”
Meanwhile, Federal Housing Finance Administration acting director Edward DeMarco said the government is re-evaluating its home refinancing program, aiming to expand it to more consumers.