The news story started this way, “…the Case Shiller index for September which was also reported moments ago, showed yet another month of what it called a “Broad-based Slowdown for Home Prices.” I got to wondering if the average homeowner knows what is Case Schiller.
Two economists Karl Case and Robert Shiller, started keeping track of home resale prices and calculated the home price index back to 1890. That index is normalized to have 1890 start with a value of 100. If, for example, you bought your house in 1995 at $155,000 and sold it today for $475,000, it would be considered a home resale and figure into the index. Calculating these home resale prices over time would give you a feel for the direction of home prices.
Tuesday of last week, the latest Case Schiller news was reported, “The National Index reported a month-over-month decrease for the first time since November 2013. The Northeast region reported its first negative monthly returns since December 2013 and its worst annual returns since December 2012 due to weaknesses in Washington D.C. and Boston.”
Some might look at this news and figure that we are in for another collapse in home prices and run straight to a real estate investor screaming, “I need to sell now. Can you help?” Others might look at the latest news and just smile, thinking prices always weaken in December.
It is interesting that Schiller argued that contrary to popular thinking, there is not a continuous uptrend in home prices. He argued that “…since homes are relatively infrequent purchases, people tend to remember the purchase price of a home from long ago and are surprised at the difference between then and now. However, most of the difference in the prices can be explained by inflation.”