Understanding The Case-Shiller Housing Index

You’ve probably heard the Case-Shiller Index mentioned repeatedly in the news. Maybe you know it has something to do with home prices and the housing market. But what is this index, exactly, and how does it affect you?What Is the Case-Shiller Index? The Case-Shiller Index was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller. The trio later formed a company to sell their research; that company was purchased by Fiserv, Inc., which tabulates the data behind the index. The data is then distributed by Standard & Poor’s. The index, formally known as the S&P/Case-Shiller home-price index, is actually not one index at all. There are really several indexes:
The national home price index, which covers nine major census divisions. It is calculated quarterly and published on the last Tuesday of February, May, August and November.
The 10-city composite index, which covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC.
The 20-city composite index, which includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa.
Twenty individual metro area indexes for each of the cities listed above.
The indexes, aside from the national index, are published on the last Tuesday of each month at 9am EST. There is a two-month lag time in the data that is reported, so the report issued in May only covers home sales through March.
Each index measureschanges in the prices of single-family, detached residences (also known as houses) using the repeat-sales method, which compares the sale prices of the same properties over time. New construction is excluded – since these houses have not been previously sold, there is no way to calculate how their sale prices have changed until they have had two owners (at which point they are no longer new construction). Condos and co-ops are not included in any of the major indexes; however, there is a separate condo index that tracks condo prices in five major markets: Boston, Chicago, New York, Los Angeles and San Francisco. The types of sales tracked by the Case-Shiller indexes are called arms-length sale transactions. These are transactions where the home was sold at market value and the sale price data can be used to get an accurate snapshot of the housing market. A transaction where a mother sold her home to her son for a favorable, below-market price would not be included in any Case-Shiller index because it doesn’t accurately reflect overall housing market activity. Foreclosure sales are included in the indexes because a sale between a bank and an individual is considered both arms-length and a repeat sale. Also excluded from the index are properties whose designation changes (a property that was recently considered a house but is now a condo wouldn’t be included), sales right before or after a property has been dramatically changed (like a two-bedroom house remodeled to a five-bedroom house) and transactions that appear to have data errors (a home once sold for $100,000 later reported as sold for $10,000, for example).Why Home Prices Matter Obviously, if you’re looking to buy or sell a residential property, you’ll be interested in whether home prices are going up or down and by how much.

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