What Is S&P/Case-Shiller Index?

The S&P/Case-Shiller Index is a comprehensive measurement of U.S. residential real estate prices, tracking changes in the value of residential real estate.

The S&P/Case-Shiller Index, also known as the Case-Shiller/S&P Home Price Index, is a key economic indicator that measures the changes in the value of U.S. residential real estate. It is widely regarded as one of the most accurate trackers of home price trends in the U.S. housing market.

Historical Context

The index was developed by economists Karl Case and Robert Shiller, and it has been maintained by Standard & Poor’s since 2002. Its creation was driven by the need for a reliable gauge of housing prices that excludes the possibility of sampling biases and reflects real changes in house values.

Types of S&P/Case-Shiller Indices

• National Home Price Index: Measures the average home prices across the country.
• 10-City and 20-City Composite Indices: Track home price movements in the largest metropolitan areas in the U.S.
• Individual Metro Area Indices: Measure home price changes in specific cities.

Methodology and Calculation

The index uses the repeat sales method, capturing the price changes of the same properties over time by collecting data on properties that have sold at least twice. This method mitigates the variations that might occur from different property types and locations.

$$\text{Index} = \frac{\text{Current Price}}{\text{Price in Base Year}} \times 100$$

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Key Features and Components

The index is composed of several indices, each addressing different segments of the U.S. housing market:

• 10-city Composite: Covers major metropolitan areas such as New York, Los Angeles, and Chicago.
• 20-city Composite: Includes additional cities like Denver and Phoenix.
• Seasonal Adjustments: The index can be adjusted to account for seasonal variations in housing sales.

Applications and Uses

Real Estate Market Analysis

Real estate professionals and analysts frequently use the S&P/Case-Shiller Index to:

• Assess market trends.
• Predict future property values.
• Inform investment decisions.

Economic Indicators

Economists use it to gauge:

• Economic strength or weakness.
• Consumer wealth and spending power.
• Housing market bubbles or corrections.

Comparisons and Related Terms

• FHFA House Price Index (HPI): Another major measure of U.S. home prices, provided by the Federal Housing Finance Agency.
• Consumer Price Index (CPI): Unlike CPI, which measures overall inflation, the S&P/Case-Shiller focuses specifically on home prices.

FAQs

How often is the S&P/Case-Shiller Index updated?

A: The index is updated monthly, with a two-month lag.

Does the index cover all U.S. homes?

A: No, it primarily covers homes in 20 major metropolitan areas in the country.

How is the index useful for homeowners?

A: It helps homeowners understand market trends and determine the timing for buying or selling property.

Summary

The S&P/Case-Shiller Index is an essential metric for anyone interested in residential real estate. With its rigorous methodology and comprehensive coverage, it helps stakeholders across various sectors make informed decisions based on accurate home price trends.

References

1. Case, K., Shiller, R. (1989). “The Efficiency of the Market for Single-Family Homes”. The American Economic Review.
2. Standard & Poor’s. “S&P/Case-Shiller Home Price Indices Methodology”.
3. Federal Housing Finance Agency. “House Price Index”.

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This entry provides a detailed look into the S&P/Case-Shiller Index, valuable for understanding the movement of residential property values in the U.S.