Tuesday, June 30, 2009

Case-Shiller Index adjusted for inflation

It has been a while since I showed the Case-Shiller Index adjusted for inflation. Home prices go up for two reasons: first is a change in the value of the home, second is a change in the value of the currency used to purchase it. The second variable is called inflation. Removing inflation will allow us to isolate the actual value change in the housing market.

Oregon was in a very nasty recession in the 80's and home values suffered as a result. Some statistics (foreclosure rates & unemployment rate) for the current recession already exceed those levels set in the 80's.

If you ever read an article that says Oregon has the highest real estate appreciation rate over a 20 year period it is because of the depressed starting point set in the 80's.

The first graph compares the index adjusted for inflation and the index not adjusted for inflation.

The next graph shows Portland compared to some 'bubble cities' and some 'non-bubble cities'

Home values in cities like Dallas and Charlotte only increase in price as a result of inflation, so real estate isn't really an investment as much as a hedge against inflation.

The graphs are fairly clear, Portland was not one of the worst cities but it certainly did have it's own little bubble.