Case-Shiller Home Price Index: CNBC Explains

Karl E. Case (L), Robert J. Shiller (R)
Source: Wellesley College/World Economic Forum
Karl E. Case (L), Robert J. Shiller (R)

The S&P/Case-Shiller Home Price Index is one of those terms you hear a lot because it's used to measure the health of the U.S. housing market—which hasn't actually been healthy since the bursting of an enormous national and global real estate bubble in 2008.

While various government measurements also measure the housing market, the Case-Shiller Index is widely considered the most authoritative. CNBC explains.

What is the S&P/Case-Shiller Home Price Index?

The Case-Shiller Index (as it is commonly known), tracks changes in the value of residential real estate, both nationally and in 20 metropolitan regions.

It is composed of these separate indexes:

  • The national home price index, covering nine major census divisions.
  • The 10-city composite index
  • The 20-city composite index
  • 20 individual metro area indexes for each of the cities in the indexes above

Which cities that make up the indexes?

The Composite 10 Index cover Boston, Chicago, Denver, Las Vegas, Los Angeles, South Florida, New York, San Diego, San Francisco and Washington.

The Composite 20 Index includes those cities, plus Phoenix, Tampa, Fla., Atlanta, Detroit, Minneapolis-St. Paul, Charlotte, N.C., Cleveland, Portland, Ore., Dallas/Fort Worth and Seattle.

Who are Case and Shiller?

Karl E. Case is an emeritus economics professor at Wellesley College. Robert J. Shiller is an economics professor at Yale University.

How did the index get started?

In the 1980s, Case developed a method for comparing repeat sales of the same homes in an effort to study home pricing trends, using data from house sales in Boston—which at the time was in the midst of a housing boom.

Case argued that the boom was unsustainable, but he didn't consider it a bubble, a commonly used term to describe similar market trends. (The Dutch Tulip Bubble of the early 1600s is the most popular example of a bubble.)

Eventually, Case collaborated with Shiller, who was researching behavioral finance and economic bubbles. In the late 1980s they created a repeat-sales index using home sales price data from cities across the country.

Then in 1991, Allan Weiss, studying for a graduate degree under Shiller, persuaded Case and Shiller to form a company, Case Shiller Weiss, to produce the index with the intent of selling the information to the markets.

Fiserv, an information management company, bought Case Shiller Weiss in 2002 and, together with Standard & Poor's, developed tradeable indexes based on the data for the markets—now called the Case–Shiller Index. (Weiss went on to found Market Shield Capital in 2006.)

When is it published?

The indexes are published on the last Tuesday of each month, with a two-month lag.

Many of these price indexes—including 20 cities, low- medium- and high- tier home price indexes, condominium indexes and a U.S. national index—are managed by Standard & Poor', and are available to the public on Standard & Poor's web site. Options and futures based on the Case–Shiller index are traded on the Chicago Mercantile Exchange.

How do they come up with the indexes?

They use what is called the "repeat sales method," analyzing data on single-family properties with two or more recorded sales transactions. The data are accumulated in rolling three-month periods to offset any delays in sales data recording and to keep sample sizes large enough.

For each sales transaction, a search is conducted to gather information on any previous sale of the same property. If an earlier transaction is found, the two are paired and considered a "repeat sales transaction."

Each sales pair is examined to eliminate factors that might distort the calculations, including:

  • Transfers between family members
  • Substantial physical changes to the property
  • Transactions in which the property type designation has changed
  • Suspect data

Sales pairs with approved data are combined with all other sales pairs found in a particular Metropolitan Statistical Area (MSA) to create the regional MSA-level index. The Metro Area Indexes are then combined to create the national composite.