House-pricing indexes measure changes that occur in the pricing of residential homes. The most commonly used house pricing index is the Case-Shiller Index, put together by Karl Case, Robert Shiller and Allan Weiss in the 80s. After developing the housing index, they started a company to help them sell the research. Their company was later purchased by Fiserv, Inc., which records the data behind the index. After the data is recorded, it is distributed by another financial services company called Standard & Poor’s.
The Case-Shiller index is actually composed of several indexes, such as the national home price index, which is determined quarterly and published in February, May, August and November. Another index is the 10-city composite index, and it covers the following cities: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. A third index is the 20-city composite index which, besides the cities listed above also includes: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa. Also, all the cities in the 20-city composite index have 20 individual indexes.
What Does the Case-Shiller Index Do?
The Case-Shiller index analyzes the changes in the pricing of single-family homes by comparing the prices for which the same properties have sold over time. Because newly built homes don’t have a pricing history, they are excluded from the analysis conducted by the Case-Shiller index. New homes usually must have had 2 owners before it can be determined how their pricing has changed over time. Condos are also excluded from the Case-Shiller index, although there is an index that analyzes condominium pricing in five major areas: Chicago, Boston, Los Angeles, New York and San Francisco.
The Case-Shiller house-pricing index tracks homes sold at market value for prices that can be used to accurately determine the state that the housing market is in. Transactions where homes have been sold far under market value, for example between close family members, won’t be included in the case-Shiller index, because they don’t accurately represent the housing market activity in that area. However, foreclosure sales are included in the Case-Shiller index because they are considered regular transactions.
Home-pricing indexes help both home sellers and home buyers. Buyers who look at indexes and see that home prices tend to increase will know that they have to hurry up and make their purchase before prices go up significantly; sellers who notice that prices are increasing can wait a while longer until they put their house on the market and increase their chances of getting a better price.
Other House-Pricing Indexes
The Case-Shiller house-pricing index might be the most popular, but there are a few other indexes that track home prices. One of them is the United States Federal Housing Finance Agency (FHFA) which, besides sales, also includes refinances. The FHFA includes 363 metro areas and covers mortgages for single-family residences which are backed by Freddie Mac or Fannie Mae.
Other indexes are the LoanPerformance Home Price Index, which covers almost the whole country, and the IAS360 House Price Index, which is published with a smaller lag than the Case-Shiller index, making it more accurate.
The Case-Shiller and other house-pricing indexes can help, whether you are looking to buy a home or sell one. Keeping a close eye on these indexes before getting involved in a real estate transaction can help you get a better deal, or, at the very least, help you better understand the housing market.