The True Picture of U.S. Home Prices: Understanding the National Home Price Index Adjusted for Inflation

July 30, 2024 : Understanding the real value of home prices in the United States requires more than just looking at the raw numbers. The S&P CoreLogic Case-Shiller Home Price Index (HPI) provides a valuable measure of changes in the selling price of single-family homes in 20 major metropolitan areas. However, to get a true picture of appreciation at the national level, we must adjust this index for inflation. By dividing the Home Price Index by the Consumer Price Index (CPI), we get an inflation-adjusted value that shows the real changes in home prices over time. This article dives deep into the data and methodology behind the National Home Price Index, explaining how it works and what it tells us about the housing market.

The journey of home prices from the year 2000 to 2024 is a fascinating one, filled with peaks and troughs that reflect the broader economic landscape. Starting in January 2000, the HPI/CPI was at 0.5939. Over the next few years, the index showed a steady increase, reaching 0.6251 by December 2000. This upward trend continued into 2001, with the index climbing to 0.6565 by the end of the year. The early 2000s were marked by a housing boom, driven by favorable economic conditions and easy access to credit. By December 2005, the HPI/CPI had soared to 0.9132, reflecting the rapid increase in home prices.

However, the period from 2006 to 2011 saw a dramatic shift. The housing market bubble burst, leading to a significant decline in home prices. The HPI/CPI dropped from 0.9192 in February 2006 to 0.6248 in April 2011. This period was characterized by widespread foreclosures and a significant downturn in the housing market. The recovery from this downturn began slowly but gained momentum over time. By December 2014, the HPI/CPI had rebounded to 0.7113, showing signs of recovery.

The most recent data from January 2020 to May 2024 paints a picture of a housing market that has experienced both resilience and volatility. Starting at 0.8305 in January 2020, the index showed a steady increase throughout the year, reaching 0.9028 by December 2020. This period of growth continued into 2021, with the index climbing to 1.0024 by December 2021. The year 2022 saw the index peak at 1.0421 in May, before experiencing a slight decline, ending the year at 0.9960. In 2023, the index demonstrated a gradual recovery, reaching 1.0184 by December. As of May 2024, the index stands at 1.0221, indicating a stable housing market.

Analyzing the month-over-month (MoM) and year-over-year (YoY) changes provides further insights into the market dynamics. For instance, in January 2000, the HPI/CPI increased by 0.41% from the previous month, which translates to an annualized change of 4.93%. This pattern of steady growth was typical of the early 2000s, with significant MoM increases observed in April 2000 (0.84%) and August 2000 (0.68%). The annualized change for these months was 10.05% and 8.16%, respectively.

The period from 2006 to 2011 saw more frequent and substantial declines. For example, in September 2006, the index fell by 0.60% from the previous month, with an annualized decrease of 7.19%. The decline continued through 2007 and 2008, with some of the steepest drops occurring in 2008. In June 2008, the index decreased by 2.01% from the previous month, translating to an annualized drop of 24.14%. This period highlights the severe impact of the housing market crash.

Post-2011, the market began to recover, with more consistent MoM increases. For instance, in March 2013, the HPI/CPI increased by 1.76% from the previous month, leading to an annualized change of 21.13%. This period of recovery continued through the 2010s, with notable increases in 2014 and 2015. By 2019, the market had stabilized, with the HPI/CPI showing modest but steady growth.

The period from January 2020 to May 2024 has been particularly interesting. Despite the challenges posed by the COVID-19 pandemic, the housing market showed resilience. In April 2020, the HPI/CPI increased by 0.98% from the previous month, with an annualized change of 11.72%. The index continued to rise throughout 2020 and into 2021, reflecting strong demand and limited supply. By October 2021, the MoM increase was 0.31%, with an annualized change of 3.76%.

The year 2022 saw more fluctuations, with some months experiencing declines. For instance, in August 2022, the index decreased by 1.38% from the previous month, leading to an annualized drop of 16.55%. However, by the end of 2023, the market had stabilized again, with the HPI/CPI reaching 1.0184 in December. The most recent data from 2024 shows a relatively stable market, with the index at 1.0221 in May.

The methodology used to calculate the S&P CoreLogic Case-Shiller Home Price Index involves tracking repeat sales of single-family homes. This approach helps to isolate the true price changes by comparing the sales prices of the same property at different points in time. The data is then adjusted for inflation using the Consumer Price Index (CPI), providing a more accurate picture of real home price appreciation.

This detailed analysis of the National Home Price Index adjusted for inflation highlights the importance of understanding the real value of home prices. By adjusting for inflation, we can see the true appreciation in home prices, providing valuable insights for homebuyers, sellers, investors, and policymakers. The data from the past two decades shows a market that has experienced significant growth, dramatic declines, and steady recovery. As we look to the future, the HPI/CPI will continue to be a critical tool for understanding the dynamics of the U.S. housing market.​