Bankruptcy

Housing Prices--It's Worse than It Looks

By Adam Levitin

The latest housing price index numbers from the S&P/Case-Shiller Index were bad.  But no one has quite recognized that the index is at its lowest point post-bubble.  The S&P/Case-Shiller Index reflects differences in repeat sale prices on the same property. That means it doesn't account for inflation. If one adjusts the S&P/Case-Shiller Index for inflation (I used the CPI for All Urban Consumers, as S&P/C-S is an metro area price index), you'll see that the January 2011 numbers (there's a 3-month lag) were slightly lower than the previous post-bubble low in June 2009.  On an inflation-adjusted basis, we're back to where prices were in January 2002. 

Now while it might make sense to look at housing prices on an inflation-adjusted basis for examining trends over time, inflation does have a major impact on debt burdens and ultimately on whether homes are underwater. Inflation--the debtor's friend and the creditor's foe. 

Full post as published by Credit Slips on March 30, 2011 (boomark / email).