New Case-Shiller data shows month-to-month improvement, while year-over-year price movements are still hurting.

Case-Shiller home price indices study constant-quality real estate values. The indices are named after economists Karl Case, Robert Shiller and Allan Weiss, who began tinkering with methods to normalize housing prices in the 1980s. By normalize, I mean to communicate the amount of appreciation (inflation, actually) or depreciation in a given real estate market, from a baseline date. The nice thing about Case-Shiller indices is they measure and compare repeat sales of the same property, over time. This gives a clearer picture of what price the market values a given home at, as opposed to doing a comparative market analysis of “like properties” in the area.

Case-Shiller indices include a national home price index, a 20-city composite index, a 10-city composite index and twenty individual metro area indices. Given that real estate prices vary so much by region, not to mention city, suburb and neighborhood, we will focus on individual metro areas as opposed to national averages.

Lucky for us, the new numbers for May 2009 have been released!

Case-Shiller indices have a base value of 100 in January 2000. A current index value of 150 translates to a 50% appreciation (inflation, actually) rate since January 2000 for a typical home located within the metro market.

Home Prices, by Metro Area

Many people are jumping for joy, as national averages of the recently released Case-Shiller data show U.S. housing prices experiencing the first monthly gain in three years. Keep in mind, though, that real estate has seasonal trends. Namely, more sales take place in the summer than any other time during the year; throw in late spring and early fall into that scenario as well. A month-to-month change from April to May is not nearly as indicative of real estate health as the year-over-year trend.

Robert Shiller is a behavioral economist, and has some interesting views on how psychology affects the economy. While I don’t agree with all of them, his book, Animal Spirits, was being passed around the Obama administration as a quick read. The book is co-authored by George Akerlof, who is probably most famous for his article, The Market for Lemons, where he examines the secondary used car market and the impact of asymmetric information and adverse selection.

The following is an excerpt from the teaser to Animal Spirits:

Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government–simply allowing markets to work won’t do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life–such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes–and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.

Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits–the powerful forces of human psychology that are afoot in the world economy today.

While psychological forces lead to real issues like irrational exuberance, cognitive dissonance, mental accounting and confirmation bias, I’m not sure I trust leaders to channel my animal spirits.