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Case-Shiller home prices fell 0.3 percent in April after declining 0.1 percent in March.

The lead chart puts things in perspective.

What Is Case-Shiller?

Case-Shiller measures sales prices of the exact same home over time. It factors out major improvements.

It’s a better measure than median or average prices because the latter does not factor in square footage, location, lot size, or amenities.

However, Case-Shiller is a lagging indicator.

The latest report is for April but that includes sales for February, March, and April. Moreover, the sales reflects the date when the sales closed, not when the contracts were signed. February closing prices could include contracts signed as far back as December.

On average, April represents January or February prices. In declining markets, prices are lower than the report indicates and in rising markets prices are higher than the report indicates.

All existing-home measures lag, but Case-Shiller more than NAR reports.

Percent Change Since January 2020

• Case-Shiller National: 52.5%
• Case-Shiller 10-City: 52.6%
• OER: 41.2%
• CPI Rent: 27.8%
• CPI: 24.0%

Owners’ Equivalent Rent (OER) is the price one would pay if they rented their own house, unfurnished, without utilities, instead of owning it.

No one pays OER. And on that basis many claim the CPI is overstated. From the point of view of those wanting to buy a home, the CPI is very understated.

It’s easy to feel bad for Millennials and Zoomers priced out of homes rising more than double the alleged CPI.

Percent Change From Year Ago

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Mess Entirely of Fed’s Making

This is a mess entirely of the Fed’s making. And it’s what happens when the Fed, and economists in general do not count home prices as inflation.

Home prices are not directly in the CPI or PCE. The latter is the Fed’s preferred measure of inflation.

Economists consider home prices a capital expense not a consumer expense. The problem is simple: Inflation is not just a consumer price concern!

The Fed ignored obvious inflation in the Great Recession and did so again in the Covid recession.

The Fed does not know what to do now because there is no good answer.

For homes to become affordable again. mortgage rates need to decline and home prices need to fall dramatically.

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