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Tuesday, October 28, 2008

Case Schiller Price Index (August)

I previously detailed that CPI may overstate inflation for an individual who:

  • does not own a home
  • would like to own a home
  • will likely soon buy a home

as it does not include how "affordable" housing has become with the recent price collapse for non-homeowners (full details here).

The Case Shiller Price Index (CSPI) has turned positive year over year for the third month in a row with the spike in August's CPI offsetting further deterioration in the housing market, with the Composite 10 dropping over 17.7% year over year. With future CPI prints coming down as a result of free-falling commodities, expect CSPI to turn very negative in the coming months.

In looking at the Composite 10's five year returns (annualized), even after the huge downturn in prices, returns over the most recent five year period are still positive at ~2.8% per year and indicates there may still be room for further deterioration.