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A lot has been written recently about plummeting home prices as measured by the S&P/Case-Shiller Home Price Index. The national press typically quotes this index when describing how poorly the housing industry is doing. Two questions arise: What is the data telling us, and can we apply it here in South Louisiana?

This index tracks housing sales in 20 major markets across the country, the closest to us being Dallas, followed by Atlanta. It looks at repeat sales of individual houses over time for an accurate picture of price appreciation. The indexing is done by comparing current prices to January 2000 prices.

At the peak in February 2006, the composite index for all 20 markets had risen from 100 in January 2000 to 203.16. This means that if you bought a $100,000 house in January 2000, the price would have increased to $203,160 by February 2006. That is an average increase every year of 12.5%. That is certainly a nice return, but you have to wonder if it is realistic and if it is sustainable.

It was neither. Since February 2006 (before the "credit crisis") the index has declined to 175.94. This is a decrease of about 7% per year. Nobody likes a negative return, particularly if it continues year to year, so I understand the predicament of those who bought at the peak. But how long did they think double-digit appreciation would last?

Now wait a minute: The current composite index of 175.94 means that my house appreciated almost 75% from January 2000 to now. This is an average annual appreciation of 7.3%, even with the downturn in the past two years. That's a pretty good return if I bought in 2000 and sold in 2008.

Again, this is a composite index. Some markets did better, some did worse, and some had very little movement at all. But the trends were similar. And it makes a real difference where along this roller coaster ride you bought your house.

So what do we make of this data? My reading of it is that the markets surveyed (again, this did not include our area) were overheated with unrealistic and unsustainable price appreciation from 2000 to 2006. In the past two years there has been a correction in those markets where prices have settled down. Part of the decline is due to lack of easy financing and foreclosure activity in markets with local economic downturns, but I suspect most of it is a healthy dose of reality.

The second question asked if we could apply the above experience from 20 major metropolitan areas to our situation in South Louisiana. Short answer: no. The longer answer will appear next week.

(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)