Chart Notes

Case-Shiller is a measure of repeat sales of the same house. This is a far better measure than average or median prices that widely vary over time by home size and amenities.

Disposable means after taxes

Real means inflation adjusted using the BEA's Personal Consumption Expenditures (PCE) inflation index, not the BLS Consumer Price Index (CPI).

Both indexes are set to 2000=100.

Case-Shiller is through May (reflective of March) while Real DPI is through June. There is a minor bit of skew that I did not factor in.

For at least 12 years, home prices followed extremely closely to real disposable personal income. In 2012 the indexes touched again at 133-134.

The BEA calculates REAL based on PCE. Adjusting for inflation by the CPI would make the current bubble look bigger and I believe more accurate.

The important point is the massive divergence between the measures noting that the bubble is a bit understated.

Percentage Difference Between Home Prices and Real DPI

2006: (185-120)/120 * 100 = 54.17 Percent

2023: (305-169)/169 * 100) = 80.47 percent

On a real DPI basis, home prices are roughly 80 percent above where they should be.

Some justify these home prices on the basis of mortgage rates and affordability. They are wrong.