As discussed last week, the new three-tiered Case-Shiller Home Price Indexes have clearly demonstrated the degree to which the late, great era of easy mortgage lending had wildly different effects on properties within the various price segments.

Let’s now look at the three indexes again from a slightly different angle by adjusting them for inflation as measured by the Bureau of Labor Statistics’ Consumer Price Index. This will allow us to observe the degree to which home prices within all three categories have changed compared to everything else, or at least compared to the subset of “everything else” that is represented by the CPI.

The first longer-term graph shows that while the cost of living may have risen during the boom, the cost of housing rose a whole lot faster. Even the comparatively tame upper tier saw its CPI-adjusted price rise by 154 percent from the bottom of the 1990s bust to the tippy-top of our recent boom. The CPI-adjusted prices of mid-tier homes rose by 183 percent from trough to peak and those of the lowest tier — not overall prices, mind you, but prices compared to everything else — skyrocketed by an astonishing 238 percent.

Those disparate price movements have now gone into reverse as the housing bubble’s biggest winners are turning into the downturn’s biggest losers. Since their respective peaks in mid- to late-2005, the CPI-adjusted prices are down 10.8 percent for high-priced homes, 15.7 percent for mid-priced homes, and 16.7 percent for low-priced homes.

Real estate optimists would point out that the inflation-adjusted price declines to date haven’t been all that steep compared to the incredible gains that preceded them. Pessimists, noting that prices are still far above their historical norms, would point out the same thing.


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