I’m working on a new paper tracking aggregate real estate values over time, and I happened upon this curious nugget. This is a little bit of speculative analysis, but these little shadows of our hobbled housing market show up all over the place, if your personal Overton Window is positioned to see them.
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Figure 1 is a chart from 1959 to 2021. The gray line is the estimate of total owner-occupied real estate from the Fed, divided by total personal income estimated by the BEA. The blue line is the Case-Shiller price index, deflated with CPI. The orange line is the difference between the two.
These are fundamentally different measures. The aggregate value/aggregate income measure is the estimate at a point in time. Compositionally, it changes over time. We build new homes and we earn higher incomes over time. The Case-Shiller measure and the CPI attempt to track the real value of the existing housing stock over time, without compositional changes.