Real Estate Investing Tool to Follow Home Prices

Whether you're a real estate investor, agent, broker, mortgage person or just curious, there's an interesting and helpful tool out there to analyze home price performance over the last 20 years. And it doesn't lead one to panic in today's marketplace.

Let's pretend you purchased a stock on the New York Stock Exchange in 1987 at $62.82 per share. You still own it, and it's now $218.37 per share. Sounds great. That's a 248% increase over cost or about three and one half times the original value.

The thing is, about twelve months ago it hit $226.29, and that means you've lost about 3% in value since that day. Are you in a panic? Are you telling all your business acquaintances and friends to get out of the stock market? Probably you're not. You may decide to sell to lock in profits, or you might hold, believing this great investment will get past this dip and go on to greater heights. Besides, there's those pesky capital gains taxes.

Either way, you know that this stock has previously retraced up to 6% in value over a period of time, but it never took back more than a tiny percentage of your profits. There's a really accurate financial tool out there that shows precisely this history for home prices from 1987 through May 2007. It's called the S & P Case-Shiller® Home Price Index. Actually, it's a group of urban area indexes and a national aggregated one where these numbers were posted.

In the 1990's, this index did back up as much as about 6% from highs in 1989, but then took off again to today's levels. Far from being able to predict the future, but I think that this stock deserves a little more respect for it's prior performance. You might want to watch these indices in the future, especially if you read about how careful they are in making sure the data is accurate.