by Calculated Risk on 8/26/2008 11:40:00 AM

The first graph compares real and nominal Case-Shiller Home Prices through Q2 2008 (real is current index adjusted using CPI less Shelter).

Click on graph for larger image in new window.

In real terms, the Case-Shiller National Home price index is off 25% from the peak. Real prices are now back to the Q4 2002 level (nominal prices are back to mid-2004).

With existing home inventory at record levels, and tighter lending standards, prices will probably continue to decline over the next few years - perhaps another 15% to 25% in real terms on a national basis.

The second graph compares the year-over-year (YoY) change in real Case-Shiller house prices with the YoY change in Personal Consumption Expenditure (PCE) from the BEA GDP report.

There is some correlation, but there are other factors that impact PCE such as changes in income, consumer borrowing and other assets prices (like the stock market). I still think YoY PCE growth will turn negative in the coming quarters, but so far PCE has held up pretty well given the sharp decline in real house prices.