The Case for the Case-Shiller Home Price Index

Many of us have heard of the "Case-Shiller Home Price Index" in all of our reports about the housing condition. Many times is plastered all over the housing news to validate whatever scary news the media want to plant in your brain. It has gained popularity now during our recent Housing Crisis. However, it is not something new. The Standard & Poor's Case–Shiller Home Price Indices are constant-quality house price indices for the United States. There are multiple Case–Shiller home price indices: A national home price index, a 20-city composite index, a 10-city composite index, and twenty individual metro area indices. In other words the Case-Shiller Home Price Index tracks the value of single-family housing within the United States.

To give you a little history, The indices are calculated from data on repeat sales of single-family homes, an approach developed by economists Karl Case, Robert Shiller and Allan Weiss. Case developed a method for comparing repeat sales of the same homes in an effort to study home pricing trends. He was using data from house sales in Boston in the early 1980s, which was going through a housing price boom. While Case argued that such a boom was ultimately unsustainable, he had not considered it a bubble, a commonly-used term to describe similar market trends. Case sat down with Shiller, who was researching behavioral finance and economic bubbles, and together formed a repeat-sales index using home sales prices data from other cities across the country. In 1991, while Weiss was performing graduate studies under Shiller, he persuaded them to form a company, Case Shiller Weiss, to produce the index periodically 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 tradable indices based on the data for the markets which are now commonly called the Case–Shiller index.

What does that mean to us as real estate investors?. In today's information overload society, the Case-Schiller becomes another piece of information that sometimes creates more confusion. One of the challenges that most of the research firms encounter, Case-Schiller included, is that their research is based on data from previous periods and by the time the information is relesed many times it is useless. The Case-Shiller Home Price Index tracks sales pairings in 20 major U.S. cities. The problem is that the data is already three months old by the time it’s released to the public.

Should we ignore the Case-Shiller Home Price Index? I do not think so. I think it does have value and should be part of your arsenal of information. However, use it as is meant to be as a research data of events that already happened and not for you to over-react on the information. History teaches us a lot and we can use historical data to prevent repeating the mistakes of the past. Use your Schiller-Case data and keep your feet firm on the ground. Being in the now and on the ground will help you keep yourself real and ready to make the necessary corrections you need to achieve success.