Case-Shiller Background

The Case-Shiller numbers for January 2011 were released today, and the data shows that the nationwide decline in home prices is continuing.  Of the 20 metro areas tracked by Case-Shiller, 19 showed a decline in January.  I thought it would be interesting to take a closer look at how the Case-Shiller index in each market has performed over time.

Explanation of Plots

In this post, I have plotted the Case-Shiller metro area data from January 2000 through January 2011.  I have assigned each metro area to one of five U.S. regions, and I have created a plot for each region.

The top window of each plot shows how “constant-quality” home prices have varied for each metro area within the region.  In addition, the Consumer Price Index (CPI) and the 20-city Case-Shiller composite index are shown in each plot.

In the bottom window, I have adjusted each housing index on each date by the interest rate for a 30-year fixed mortgage on that date using the annuity payment equation.

  Annuity Payment = P\left ( i+\frac{i}{\left ( 1+i \right )^{n}-1} \right )

In other words, this window shows an index of how mortgage payments have varied over time for a new buyer of a “constant-quality” home.   The payment indexes have also been rescaled to a starting value of 100.

The purpose of the mortgage-rate-adjusted plots is to give some idea of how home affordability has varied over time.  I am not suggesting that payment level is the only thing that matters to the new home buyer, and I am not suggesting that home valuation should vary directly with mortgage rates.  However, mortgage rates do play a role in the home purchase decision, and I think it is interesting to look at this transformation of the Case-Shiller data.

Regional Case-Shiller Plots

The plots below show the Case Shiller data for each U.S. region.

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