Friday, December 7, 2007

How Fast are Home Values Changing?

Here are a couple of different ways to look at the same housing value data and draw some radically different conclusions. The data are OFHEO's US Housing Price Index. When you graph the index itself it looks like this:Almost peaceful looking, isn't it? The most recent quarters clearly show prices are flattening, but all this talk of plummeting values seems overblown.

Another way of looking at the same numbers is to compare the percentage change in the index over a rolling 12 month period (the first data point is the percentage change between Q1 1975 and Q1 1976, the second data point is the percentage change between Q2 1975 and Q2 1976, and so on). When you graph that, you get a much different picture:

The only nice thing you can say about this chart is the deceleration today is not as bad (yet) as the period from Q1 1979 and Q3 1982. Of course, those of us who were around then remember that period as pretty dark days for real estate.

These charts are good examples of why rates of change almost always give a clearer picture of what's going on than looking at absolute levels of almost any index. For a great discussion of this point, see Ahead of the Curve by Joseph Ellis.