How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI
Various charts show home prices are now back to levels last seen in September-October 2002. I posted such a chart constructed from the LPS Home Price Index (HPI) in LPS Home Price Index Shows U.S. Home Prices Accelerated Decline.
Real vs. Nominal Prices
Nominal prices are arguably not the best way of looking at things. I asked Doug Short at Advisor Perspectives if he would chart "Real" home prices. His answer was "In a heartbeat, if I can get the data".
"Real" in this case means "Inflation Adjusted" price, nominal simply means the "Current Price".
After receiving an Excel spreadsheet of the HPI data from LPI, I passed the spreadsheet on to Doug Short. I suspect he did not know what he was getting into, because once I supplied the data, I started asking for all kinds of charts.
I asked Doug for help for the simple reason his charts and the charts by Calculated Risk are in a class of their own. Advisor Perspectives frequently uses my articles so I went that route.
Note that "Inflation Adjusted" itself can mean many things, and indeed this post will take a look at "Real" home prices from several angles.
HPI Nominal Price, PCE Adjusted, and CPI Adjusted
The two most common ways to adjust for price inflation are the CPI (consumer price index) and the PCE (personal consumption expenditures index). We use the CPI in the rest of the charts below because individual components' percentage weights are readily available. (more)
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