It's interesting to me that the Case Shiller Home Price Index (adjusted for inflation) does not exhibit mean reversion characteristics like the stock market (R^2 < 1%). The first chart above shows the index since 1890. Just like last week, the black line is the line of best fit with exponential growth equation y=b*m^x. Once again, the blue line simply represents where the black line would have ended up on the right-hand side if it were calculated each year based solely on data available through that year. The second chart (scatter) just shows there is no statistically notable mean reversion. What I see is a data series that typically does not vary greatly from the trend line; except for the extraordinary bubble of the 2000s. It appears prices have returned to 'normal', but of course prices could potentially 'over correct' and decline ~20% below the trend line as they were for much of the 1920s and 1930s. In case you were wondering, home prices have only exceeded inflation by 0.22% annually since 1890. Separately, look at how wild inflation used to be in the olden days.
No comments:
Post a Comment