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What IS the “S&P/Case-Shiller Home Price Index”?

Home prices are edging up. At least according to the latest monthly S&P/Case-Shiller Home Price Index released in late August. It shows that home prices went up in every single one of the 20 metropolitan areas included in this index.

I’ll look more closely at these price increases and tell you about them in my next blog. But today, I got curious—I’ve been hearing about this index for years without knowing what it’s actually measuring. So I did a little digging and here’s what I found out:

At 9:00 a.m. Eastern Time on the last Tuesday of every month, Standard & Poor’s Financial Services releases the S&P/Case-Shiller Home Price Indices. It’s actually not a single index, but a group of them measuring “the average change in home prices” on a monthly basis in different geographic markets. There’s a separate index for each of twenty major metropolitan areas, and also these are “aggregated to form two composites–one comprising 10 of the metro areas, the other comprising all 20.”

These indices measure single-family home prices in comparison to what they were in January of the year 2000.  The price of homes as of that date in each of the metropolitan areas was assigned an index value of 100, with increases or decreases each month based on the percent change in value from that base value. So, for example, an index value of 150 at any particular point in time indicates a 50% increase in home values from what they were as of that base January 2000 date. It helps to know that the indices reflect only changes in price to single-family homes—not condominiums (they have a separate index for that), co-ops, or multi-family homes. Also brand-new homes aren’t included because of the focus on change in price.

A couple timing aspects are worth understanding. When the indices are made public every last Tuesday of the month, they are for the calendar month nearly two months earlier. So the ones released last week are for June. Also, that set of “June” home prices actually is a three-month moving average, so it includes data for April, May, and June. That’s done for certain statistical reasons to make the conclusions less volatile and more reliable, but it seems that that would also make them less sensitive to changes in value, and somewhat outdated. I’m not going to go into the methodology used for the indices, except to say that it was developed in the 1980s by two economics professors, Karl E. Case and Robert J. Shiller, and “uses data on properties that have sold at least twice, in order to capture the true appreciated value of each specific sales unit.”

If you want to know more, click on “Methodology” to read a 40-page explanation, including multiple pages of calculus formulas, if that’s your thing! As I said, more on the just-released information in my next blog. But I’ll reward you for reading this far by telling you that the 20-metro composite index has risen for the last three months in row, going up about 3.7% in that time to a current value of 141.30. But considering that four years ago at the top of the real estate bubble this index was at 206.52, we still have a long, long climb ahead. And that’s if we keep going in a positive direction, which by no means is a sure bet.

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