Understanding the Case-Shiller Housing Index

The Case-Shiller Index, formally known as the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, is an economic indicator that measures the change in value of U.S. single-family homes on a monthly basis. The index is based on the repeat-sales pricing technique developed in the 1980s by economists Karl Case and Robert Shiller.

Understanding the Case-Shiller Index

In 1991, economists Karl Case and Robert Shiller, along with colleague Allan Weiss, formed a company that began publishing index data tracking housing prices across the U.S. The company was eventually purchased by Fiserv, Inc. (FISV), which sold it to the real estate analytics firm CoreLogic in 2013. CoreLogic gathers the home price data from registries of deeds and other recording offices for real estate transactions and calculates the index, which is distributed by S&P Dow Jones Indices, a division of S&P Global Inc. (SPGI).

The index is one of three CoreLogic produces with the Case-Shiller methodology:

• The National Home Price Index tracks changes in the value of U.S. single-family homes on a monthly basis. The national index is a composite of home price indexes from each of nine U.S. regions based on census divisions.
• The 10-city composite index covers 10 metro areas including Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C.
• The 20-city composite index, includes all of the metro areas above along with Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle, and Tampa.

Home sales price data from each metro area is used to estimate the total value of single-family houses in the metro area. These aggregates determine the relative weight of each metro area in the 10-city and 20-city composite indexes.

Updates for the three indexes are released on the last Tuesday of each month at 9 a.m. ET. There is a two-month data lag, so that the index values published at the end of June reflect prices in April.

What Case-Shiller 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 price of a given property in successive transactions. That means new homes must be bought and then resold before their prices can be included in the Case-Shiller sample.

Case-Shiller indexes track so-called arms-length sale transactions: those where the sale price reflects market value because the buyer and seller were each acting solely in their own best interest. Property sales to family members and repossessions by banks at the start of the foreclosure process are excluded. So are sales after which the property designation changes (for example from a single-family home to condominium), or those with a price suggestive of a data error. Foreclosure sales are included in the indexes because the foreclosing bank's sale of a property counts as an arms-length transaction.

The Case-Shiller indexes exclude data from homes sold more than once in a six-month period as historically and statistically suggestive of a non-arms-length transaction, a pending redevelopment, or fraud.

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

The Case-Shiller Methodology

The sale price of the same single-family home in successive arms-length transactions, known as a "sale pair," is the basic data unit of the Case-Shiller indexes. For each home in the most recent monthly sample of recorded transactions, CoreLogic attempts to identify a prior arms-length transaction to assemble such pairs.

Sales pairs are assigned to one of three price tiers—low, medium, or high—based on the first sale price in a sale pair. These data sets are used to produce Low-Tier, Medium-Tier, and High-Tier indexes using the same methodology as for the city composite indexes.

The index weighting methodology lowers the weight of the 10% to 15% of sales pairs with the largest price changes, and of those with more time between the two transactions as more likely to reflect non-market factors.

Each month's index data reflects transactions for three months, so that the Case-Shiller indexes for June, published at the end of August, reflect transaction prices in April, May, and June, for example.

Why Home Prices Matter

Housing is a big part of the U.S. economy, sensitive to changes in interest rates and a catalyst for consumer spending on big-ticket items and construction employment. Home sales and housing prices are important indicators of how the broader economy is performing. Do people feel confident that now is a good time to make a large investment? How well is a particular geographic region faring economically? The Case-Shiller Index provides insights for analysts seeking to answer such questions.

The Chicago Mercantile Exchange hosts trading in futures and options linked to the 10-city composite Case-Shiller Index as well as indexes for each of its constituent metro areas. Housing sector participants can use these instruments to hedge their exposure to the cyclical industry's ups and downs. They also permit speculation on the direction of housing prices nationwide and in each of 10 key U.S. metro areas.

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 is also a repeat sales index, covering 400 metropolitan areas across the U.S. and transaction data going back as far as 1975.

Like Case-Shiller, the FHFA HPI is also a family of indexes, produced by the FHFA from tens of millions of home sales records. To highlight different market segments, the FHFA produces three main types of indexes: the Purchase Only HPI, the All-Transactions HPI, and the Expanded-Data HPI.

The Purchase Only HPI is the one most often cited in the media. The All Transactions HPI includes refinancings, not just home purchases, while the Expanded-Data HPI includes FHA mortgages and information from public records, which expands the data set to include homes priced above the conforming loan limit for FHA mortgages.

The FHFA also produces alternative indexes for practitioners and researchers. The Distress-Free HPI excludes foreclosures and short sales. The Annual HPI offers granular data for more than 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 the repeat-sales pricing technique. The CoreLogic HPI covers more than 7,100 U.S. ZIP codes, some 930 Core Based Statistical Areas (CBSAs), and more than 1,300 counties.

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,, an Irish bank. Permanent TSB owns nearly 18% of the country's residential mortgage loans. This index takes a home's size, type, location, and other characteristics into account before valuing it with 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 closely watched barometer of U.S. housing prices, which are among the key factors influencing economic performance.