Thursday, February 17, 2011

Case Shiller Price Index

Haven't posted this in a while...

As I've previously detailed, CPI may not reflect actual price levels for an individual who:

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

Why? Full details here, but in a nutshell the CPI measure includes a 'home owners equivalent rent', which has not fluctuated nearly as much as the actual home price level in recent years (both on the way up and on the way down).

The below shows headline CPI vs. a "Case Shiller Price Index" that swaps in the actual home price levels (per the Case Shiller) for the equivalent rent figure (assuming a constant ~25% weighting of owners equivalent rent within the broader index and flat price levels in December and January).

By this measure we see much higher inflation pre-crisis than reported, much greater deflation post-crisis, and the potential beginning stage of another divergence.

Source: BLS / S&P


  1. It all evens out eventually, so housing will turn up in 8 years or so. Just roughing a guess.

  2. Dug up some cool live show clips for tonight, stop in if you get a shot.