Let’s have a look at how the year 2012 treated house prices, as measured by the Case-Shiller index.

This home price indicator lags by a couple months, but it offers a couple advantages. First, it uses repeat sales of the same homes, so it is more accurate than simply looking at a median price, which could be distorted by a change in the quality of homes sold.

Second, it breaks the sold homes into three price tiers, which allows us to separately analyze price changes for low-, medium- and high-priced homes. (The tier cutoffs are determined by simply splitting the sold homes into three equal-sized groups — the most expensive one-third of homes sold goes into the high-priced tier, etc.).

Here is the Case-Shiller index, for the three tiers as well as the combined index in black, starting at the early-2009 price trough:

Clearly, home prices had a strong year in 2012. This was especially so for the low-priced tier, which rocketed up 13 percent for the year. The middle and high tiers increased more modestly, by 9 percent and 7 percent respectively, and the overall index was up 9 percent.

Here is a look at the same data, but starting at the bubble peak. This provides a different perspective on the recoveries of the low and high tiers because of their very different declines during the bust:

Now, the same two charts with the home prices adjusted for inflation. I’ve kept the scales the same as the above charts for easy comparison.

These charts are quite a bit less impressive than the first two, and show that a good chunk of the recovery to date has simply been due to dollars becoming worth less, as opposed to housing becoming worth more. (In fact, the first chart’s title should really say, “Percentage change since 2009 nominal price trough,” since the inflation-adjusted price trough didn’t take place until 2012).

Here is a long-term look at the Case-Shiller index going back to the beginning of the data series (also adjusted for inflation). This graph shows that the extra-brutal crash in lower-priced homes was the flipside of their subprime-fuelled launch during the housing bubble:

In the next post, I plan to update the long-term housing valuation metrics to try to determine whether San Diego homes are cheap, expensive, or somewhere in between.

Rich Toscano is a financial adviser with Pacific Capital Associates*.  He can be contacted at rtoscano@pcasd.com.

Rich Toscano

Rich Toscano has been observing the housing market for Voice of San Diego, with the occasional prolonged absence, since 2006. Follow him on Twitter at...

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