Understanding the Case-Shiller Housing Index

The Case-Shiller Index, formally known as the S&P/Case-Shiller Home Price Index, was developed in the 1980s by three economists—Allan Weiss, Karl Case, and Robert Shiller. These men later formed a company to sell their research tracking housing prices throughout the U.S. That company was purchased by Fiserv, Inc., which tabulates the data behind the index that is distributed by Standard & Poor's.

Actually, the Case-Shiller Index is not just one index but made up of several indexes:

  • The National Home Price Index tracks changes in the value of residential housing by tracking the purchase price and resale value of single-family homes. It covers the nine major census divisions in the U.S.
  • The 10-city composite index covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, DC.
  • The 20-city composite index, includes all of the above cities, plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle, and Tampa.
  • There are also 20 individual metro-area indexes for all of the cities listed above.

Each of these indexes, aside from the national index which is calculated quarterly and published on the last Tuesday of February, May, August, and November are published on the last Tuesday of each month at 9 am EST. There is a two-month data lag time so a report issued in May will only cover home sales through March.

Key Takeaways

  • The Case-Shiller Index is made up of several indexes that track the value of single-family detached residences using the arms-length and repeat-sales methods.
  • Other indexes—such as the one used to evaluate condos—do exist.
  • An index that tracks property values on the county level can offer more relevant, local information to potential buyers.
  • All house price indexes, especially the Case-Shiller are barometers not just of the housing market, but also of the health of the broader economy.

What the Index Does and Doesn't Track

Each index measures changes in the prices of single-family, detached homes 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.

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. 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.

Condos and co-ops are not included in any of the major indexes. However, there are separate condo indexes that track condo prices in five major markets: Boston, Chicago, New York, Los Angeles, and San Francisco.

Also excluded from the index are properties whose designation changes (for example, a property that was until 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 into a five-bedroom house), and transactions that appear to have data errors (a home sold for $100,000 that was later reported as being sold for $10,000, for example).

Why Home Prices Matter

Even if you're not buying or selling a home, home prices are an indicator of how the broader economy is performing. Do people feel confident that now is a good time to make a large, expensive investment? How well is a particular geographic region performing economically? How are businesses that have a large stake in the housing sector performing? The Case-Shiller Index provides insight into all of these indicators.

It's even possible to take advantage of changes in home prices indirectly by investing in S&P/Case-Shiller Home Price Indexes futures and options on the Chicago Mercantile Exchange. This type of investment is recommended for businesses such as property and real estate developers, banks, mortgage lenders, and home suppliers to help them mitigate the risk of their large stakes in the housing sector. Even businesses that have little or nothing to do with housing may want to invest in these products to diversify their portfolio and manage investment risks.

Finally, many people have at least as much, if not more, invested in their homes as they do in stocks. Home price movements thus have a significant impact on the total value of their portfolios.

Two Alternative U.S. Housing Price Indexes

House Price Index (HPI)

The U.S. Federal Housing Finance Agency (FHFA), established under the Housing and Economic Recovery Act of 2008, publishes the quarterly House Price Index (HPI). The HPI covers 400 metropolitan areas in all 50 states and contains data back to the 1970s.

The FHFA HPI is a bit of a catch-all term for several indexes produced by the FHFA and based on tens of millions of home sales. Will Doerner, supervisory economist for the FHFA's Division of Research & Statistics, points out that to highlight different market segments, the FHFA produces three main types of indexes: the Purchase Only HPI, All-Transactions HPI, and Expanded-Data HPI.

The All Transactions HPI, for example, includes refinances, not just purchases, while the Annual HPI includes the most granular data: down to the zip-code, county, and census-tract levels. The Purchase Only HPI, for example, is the one most often cited in the media. The Expanded-Data HPI includes FHA mortgages and information from public records, which allows the data to cover the entire market of homes that sell below the conforming loan limit.

The FHFA also makes other alternative indexes for practitioners and researchers. The Distress-Free HPI excludes foreclosures and short sales. The Annual HPI offers data for granular geographic levels, such as over 2,000 counties, 19,000 ZIP codes, and 50,000 census tracts.

Loan Performance Home Price Index

The Loan Performance Home Price Index, produced by CoreLogic, also uses repeat-sales data but it is set up to be much more comprehensive. The CoreLogic HPI covers more than 7,100 ZIP codes, 930-plus Core Based Statistical Areas (CBSA), and more than 1,300 counties located in all 50 states and the District of Columbia, at the time of publication. Although there is a five-week lag in data, CoreLogic rebuilds its national data sets from scratch every month.

Foreign Housing Price Indexes

The United States is not the only country that produces housing price indexes.

  • Canada's major index is the National Composite House Price Index, which also uses the repeat-sales method. It combines data from single-family home sales in cities including Vancouver, Calgary, Toronto, Ottawa, Montreal, and Halifax.
  • Ireland's permanent tsb House Price Index is produced by permanent tsb Group Holdings, P.L.C., a significant provider of retail financial services in the Irish domestic banking market. In fact, the Group owns about 15% of the country's residential mortgage loans. This index takes a home's size, type, location, and other characteristics into account before placing a value on it using a complex technique known as multivariate linear regression analysis.
  • The United Kingdom's major index is the Halifax House Price index, named after Halifax, a division of Lloyd's Banking Group and the U.K.'s largest mortgage lender. This index also uses a multivariate linear regression analysis.

The Bottom Line

The Case-Shiller Index is a widely used and respected barometer of the U.S. housing market and the broader economy. But it is not the only barometer to watch. For any serious real-estate or other type of investor, alternative U.S. housing indexes, as well as foreign HPIs, should be kept in mind, too.

Article Sources

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  2. United States Census Bureau. "Census Regions and Divisions of the United States." Accessed June 10, 2020.

  3. S&P Dow Jones Indices. "S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index." Accessed June 10, 2020.

  4. S&P Global. "S&P CoreLogic Case-Shiller Index Shows Growth in Annual Home Price Gains to End 2019." Accessed June 10, 2020.

  5. Federal Bank of St. Louis. "Condo Price Index." Accessed June 10, 2020.

  6. U.S. Congress. "Public Law 110-289, July 30, 2008 -- Housing and Economic Recovery Act of 2008," 122 Stat. 2661. Accessed June 10, 2020.

  7. Federal Housing Financing Agency. "House Price Index." Accessed June 10, 2020.

  8. House Price Index: Teranet and National Bank of Canada. "Teranet-National Bank House Price Index." Accessed June 10, 2020.

  9. Permanent TSB Group Holdings plc. "Ratings." Accessed June 10, 2020.

  10. The Halifax. "Halifax House Price Index." Accessed June 10, 2020.

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