Each month you find out what the comparative value of homes all across the country are. In a survey of sales of existing homes, The Case Shiller Index gives us the answers to the questions we must have.

The index makes adjustments for houses that were neglected or had a lot of remodeling, so they don’t count for big gains or big losses in the index. The index only matches a home and it’s prior sales price.
Across 20 cities, in October 2006, the value of the index reaached it’s peak of 206 and has been falling since then, now at 143 after including February sales. January finished at 146.

Roughly speaking you could look at that and say the average house in America that was worth 206,000 in 2006 is now worth 146,000. That would not be exactly correct but it makes the index easier to understand.

So a house today is worth 70% of what it was just 2 1/2 year ago. That’s a pretty impressive drop.

In Minneapolis, where I live, the same house is now selling for the same as it did in April 2001. The index peaked here in 2006 where it spent most of the year around 170. So today that home is indexed at 116, or about 69% of it’s peak value.

In Las Vegas the index peaked their in 2006 and was at about 234, now 121. So the sales price of the average existing home sold in February compared to that same home in 2006, just 2 1/2 years ago is way down. That house is now sold for just a little more than 1/2 of what it was

You can also use the index to compare what the average price of a home sold in San Diego is with one sold in Las Vegas against one sold in Chicago. Buying a house in Las Vegas is going to cost about the same as it does in Minneapolis. In 2006 that wasn’t the case.

What’s particularly interesting is that these numbers continue to impress as to just how bad things are in the real estate market.

i.e. a home that one bought in April 2001 in Minneapolis is now selling for the same price 8 years later. And inflation is not taken into account.

Why didn’t the media report that fact this week? Instead they reported that the rate of decline was slowing down. Wow. That’s like getting paid $50,000 per year in 2006, then $35,000 in 2009 and then the pace slows down so you’d be earning say $33,000 and that is supposed to be a sign of better things to come.

Well, it certainly is humanly possible…yes, that is true. The fact is however that home prices are going down.

Why does this matter?

Because the government is doing everything in it’s power to get consumers, particularly those that are poor, to buy homes. They are offering tax credits and all kinds of short term perks to do so.

However, they are encouraging the precise behavior that was one of the major causes of the recession we are in today.

So, while everything could look better from the vantage point of a decelerating price in homes….and more homes could be sold to people on the fringe, on the edge of able to afford the home…in two years when the tax credit money is spent the person still has the same productivity and buying power in the same country. There is a short term blip of lower priced homes going up, perhaps, maybe, in “value.” But when the tax credits (money stolen from other taxpayers who could afford a mortgage without a likelihood of default) aren’t there….unless they are going to continually steal money at a higher rate from those who pay more taxes already…

And of course that is possible.

And of course that would get a President re-elected.

We’ll see how things play out. For now I’m fascinated.

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