Tuesday, November 25, 2008

Case Shiller Price Index (September)

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 once again turned negative year over year for the first time in four months as the flat September CPI figure was more than offset by further deterioration in the housing market, with the Composite 10 dropping over 18.5% year over year. With future CPI prints likely coming down further as a result of free-falling commodities, 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 ~2.15% per year and indicates there may still be room for further deterioration.