The Case-Shiller Home Price Index 101

How This Housing Index Affects You and Your Home's Value

The Case-Shiller Home Price Index 101
July 10, 2014

The Case-Shiller Home Price Index is a primary source for tracking changes in residential home prices in the US. It was developed in the 1980s, based on models created by economists Karl Case and Robert Shiller. Published for the first time in 2006, the Case-Shiller Index now ranks among the most quoted housing data sources by financial analysts.

There are several different Case-Shiller indices – 23 to be exact. There are individual indexes for 20 metropolitan areas, and 20-City and 10-City Composite Indices composed of housing data from the individual indexes – broken down into three sub-indices by price range (low-tier, medium-tier, and high-tier). However, the most often quoted index is the National Home Price Index, which is a composite of values from the nine divisions of the US census. All of these indices are now distributed by Standard and Poor's and are listed as S&P/Case-Shiller indices.

Case-Shiller focuses on single-family homes, excluding new home constructions as well as condominiums and other multi-family housing units.

To make sure there is a frame of reference for the changes, homes that are included in the index must have gone through at least two transactions defined as "arm's length" sales (excluding things like transfers within a family).

The Case-Shiller index can often give a different picture than other indices such as the Office of Federal Housing Enterprise and Oversight (OFHEO) index and the National Association of Realtors (NAR) index. Each one has various weighting and exclusion techniques that make them difficult to distinguish, but some differences are evident.

For example, OFHEO only has data on loans backed by Fannie Mae and Freddie Mac – thus giving a better picture of the lower end of the housing market where Fannie- and Freddie-backed loans are prevalent. Case-Shiller covers all tiers, giving more of an aggregate effect. OFHEO covers 363 metro areas, compared to the 20 of Case-Shiller – thus OFHEO may be more relevant to smaller housing markets. Case-Shiller does not include foreclosures but does include subprime loans.

How does the Case-Shiller Index, or any of these housing price indices, directly affect your home? While sale prices for other homes in your neighborhood directly affect the value of your home, Case-Shiller and other indices affect values in a different fashion. Case-Shiller indices are often quoted to identify overall housing trends, and thus they help shape the overall confidence level of sellers and buyers.

In other words, your local housing market and the attributes of your house and your neighborhood are setting the baseline value, but the actual price you can achieve if selling (or negotiate down to if buying) can be influenced by perceptions of the larger housing market.

Case-Shiller has one other important impact – it is the basis used for housing futures and options contracts that trade on the Chicago Mercantile Exchange (CME). If you are investing in housing futures, spend some time reading over the methodology of Case-Shiller (available online at and you will have a much better chance at futures assessment.

The Case-Shiller Index does have its detractors, who raise some fair points of criticism.

First, there is a significant time lag (2-4 months) between gathering the data, processing it, and publishing it. The reference points for sales do not have to be recent, so the change may be over a prolonged period of time and assumptions on upgrades (or downgrades) of the house during that time may be incorrect. Additionally, Case-Shiller ignores the vastly different market conditions that may exist from one city to another. Finally, the Index is value-weighted, meaning that changes in more expensive houses have a greater impact.

Because of the way Case-Shiller lumps disparate markets together, NAR spokesman Walter Molony says, "It's as meaningful as a national median temperature" – yet that macro view is exactly what many economists and policymakers are looking for.

Criticism aside, the Case-Shiller Index is an important and well-established indicator of housing values. If you are selling or buying a home, keep an eye on it for potential effects on customer confidence, and if you don't like the conclusion, find something from the other indices to use as a counterargument. Either way, it is worth your time to keep track of this useful index.

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