Final answer:
To compare housing prices between 1991 and 2016 in real terms, one must adjust for inflation using the CPI. By doing so, the 1991 median home cost of $122,000 is equivalent to $211,670 in 2016 dollars, showing a real increase in price but at a smaller rate than the nominal prices suggest.
Step-by-step explanation:
In real terms, when discussing housing prices and the Consumer Price Index (CPI), we're considering how the cost of housing changes when adjusted for inflation over a period of time. To evaluate how the real cost of a median home has changed from 1991 to 2016, one would need to adjust the nominal prices in each year by the CPI to get prices in constant dollars. This provides a better comparison of purchasing power and the real burden of housing costs.
In 1991, the median home cost $122,000 with a CPI of 137, while in 2016, the median home was $219,400 at a CPI of 237.7. To compare these two prices in real terms, you would calculate the ratio of the CPI in 2016 to that in 1991 and then adjust the 1991 median home cost based on this ratio. The calculation would be as follows:
Real Price 1991 = Median Home Cost 1991 * (CPI 2016 / CPI 1991)
Real Price 1991 = $122,000 * (237.7 / 137)
Real Price 1991 = $122,000 * 1.735
Real Price 1991 = $211,670 (rounded to nearest dollar)
This adjusted figure represents what the median home price in 1991 would be in 2016 dollars, which allows for a more direct comparison. Thus, even though the nominal median home cost increased to $219,400 by 2016, when adjusting for inflation, the real increase is relatively smaller.