Case Shiller Home Price Index

The S&P/Case Shiller Home Price (or just Case Shiller Home Price for short) indices were named after Karl E. Case and Robert J. Shiller when they began research on a methodology to measure housing prices. What they came up with in the 1980s is still regarded as the most accurate way to measure this asset classes, and the data is the most trusted source in measuring the health of the housing sector today.

The Different Case Shiller Home Price Indicies and the Timing of the Release

The home price index consists of 23 indicies in total – 20 metropolitan regional indicies, two composite indicies and a nation index. These indicies, with the exception of the national index which is calculated quarterly, are measured and published monthly. More specifically, they are released by the Standards and Poor’s at 9am eastern time on the last Tuesday of every month.

The 20 Metropolitan Cities Measured

  • Phoenix, AZ
  • Los Angeles, CA
  • San Diego, CA
  • San Francisco, CA
  • Denver, CO
  • Washington, DC
  • Miami, FL
  • Tampa, FL
  • Atlanta, GA
  • Chicago, IL
  • Boston, MA
  • Detroit, MI
  • Minneapolis, MN
  • Charlotte, NC
  • Las Vegas, NV
  • New York, NY
  • Cleveland, OH
  • Portland, OR
  • Dallas, TX
  • Seattle, WA

Methodology

At the heart of the calculations is the repeat sales pricing model. This methodology uses sales prices of each specific single family home as data points of the index. When a home is sold and then re-sold, the two prices are called a “sales pair” and the difference in prices are recorded. All these differences in sales pair pricing are then aggregated and calculated into the index.

Since the index is designed to only measure the movement of sales prices with the exact same property, sales pairs are assigned weights to take into account home improvements and other physical changes to the property. For example, if the difference in price of a particular sales pair is much higher than the others in the same community, less weight is given to it since the assumption is that there was a major home remodeling. Also, sales pairs having a short interval is given higher weights than ones having a longer interval because the chances of home improvements are smaller.

What this Means for Us

The Case Shiller home index is reported with a two month time lag (for example, March numbers are out at the end of May).  Therefore, the index is a lagging economic indicator and should be treated as such when factoring your thesis for the growth or decline of the housing market index.

Also, remember that real estate is very local biased.  What I mean is that even if the national index is dropping at record levels, the area where you live in can still see price increases.  Therefore, be very specific with these numbers and think carefully to see if it applies to the region of interest if you are using the index to buy property.

More on this topic (What's this?)
Case-Shiller Time Machine: June 2008
Pre Market Report - July 29th 2008 - Case Shiller Home Price Index
Case-Shiller Home Price Index
Read more on S&P/Case-Shiller Home Price Index - Composite 10 (CSXR) at Wikinvest

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