Chart of the day: Case-Shiller 2005

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Question: Could one see a bubble in housing back in 2005 when house prices were still rising?

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Well, to answer that question, I took the S&P/Case-Shiller Composite 10 Index and mapped it the rate of inflation. See, Robert Shiller, one of the Case-Shiller index authors, said in his seminal book Irrational Exuberance that house prices over the long-term have grown a tad more than the rate of inflation. So, you’d expect house prices to rise about in line with the Consumer Price Index (CPI).

Let’s look at the 10 years of Case-Shiller vs. the CPI from Jan. 1995-Jan. 2005. What do you think?

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