Housing Price Indices

Tim McLaughlin

Q: On the market monitor you send out each week, you have a bunch of different economic releases on there. Which release is most important from a housing perspective and can give us a sense of which direction the market is going? Thank you.

A: We give a full sense of all the critical releases each week, as they all may impact Fixed Income directly and Mortgage Rates indirectly. In regards to your question, the index that is probably most relevant to the housing sector is the Case-Shiller Index.

The Case-Shiller Index was developed in the 1980s by three economists: Allan Weiss, Karl Case and Robert Shiller, and is distributed by Standard & Poor’s. (I guess Dr Weiss was out of the room when they were deciding on a name.)  The index includes foreclosures and is actually not one index, but a composite of 23 indices. The national home price index, which covers nine major census divisions, is calculated quarterly and published on the last Tuesday of February, May, August and November. The 10 city composite index covers Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, DC. The 20 city composite index includes all of the above cities plus Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland (Oregon), Seattle and Tampa. There are twenty individual metro area indexes for each of the cities listed above. The indices, aside from the national index, are published on the last Tuesday of each month at 9AM EST. There is a two month lag time in the data that is reported, so the report issued in May only covers home sales through March. Each index measures changes in the prices of single family, detached residences using a “repeat sales method”, which compares the arm length sale prices of the same properties over time (so there is no new construction). So it is a lagging indicator, but gives a good sense of where home prices are heading, directionally, nationwide.

Probably the second most import index is Pending Home Sales, which is slated for release next Tuesday. That gives us, on a lagging sense, which direction home sales are headed and also what type of ramp up percentage we are seeing in the industry nationally. There is also a New Home Sales index, but because of the ratio between Existing and New Homes, and because New Homes sales is that much more muted in the Northeast percentage wise, Existing Home Sales is more traditionally the focus for us.

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The Week Ahead -> The “Keys”
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