Case-Shiller index

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Standard & amp; Poor's Case-Shiller Home Price Indices is the recurring home selling price index for the United States. There are several Case-Shiller house price indexes: National home price index, 20-city composite index, 10-city composite index, and twenty indices of individual metro areas. These indices are calculated and stored monthly by Standard & amp; Poor, with data points calculated for the time period January 1987 to the present. The index kept by Standard and Poor is normalized to have a value of 100 in January 2000. The index is based on original work by economists Karl Case and Robert Shiller, where their team calculates the home price index back to 1890. The index is normalized to have 1890 has a value of 100. The Case-Shiller Index stored on the Shiller website is updated quarterly. Because the reference point of the set is different, and possibly the difference in calculation, the index number provided in each data set can be very different. For example, in the 4th quarter of 2013, the 20-city Standard and Poor's index point was in the 160s, while the index point for the 4th quarter on Shiller data was in the 130's. Shiller claims in his book Irrational Exuberance that such a long series of house prices does not seem to be published for any country.

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History and methodology

The index is calculated from the recurring sales data of single-family homes, an approach developed by economists Case, Shiller and Allan Weiss who served as CEO from the start of the company for the sale of Fiserv. The case developed a method for comparing repeat sales of the same home in an attempt to study trends in house prices. He used data from home sales in Boston in the early 1980s, which is experiencing a boom in housing prices. While Case argues that such a boom is ultimately unsustainable, he does not regard it as a bubble, a term commonly used to describe similar market trends. Case sits with Shiller, who examines behavioral finances and economic bubbles, and together forms a resale index using home sales price data from other cities across the country. In 1991, when Weiss was in graduate school, he formed an informal working relationship with Shiller. Weiss proposed to Case and Shiller to form a company, Case Shiller Weiss, to produce the index periodically with the intention of selling information to the market. Fiserv, an information management company, purchased Case Shiller Weiss in 2002 and, together with Standard & amp; Poor, the tradable index was developed based on data for the now-commonly called Case-Shiller index. CoreLogic acquired Ciss Shiller Weiss business from Fiserv in April 2013.

The year 2006-2012 had the biggest accident in the global real estate market in recent history; whether this can be predicted using the Case-Shiller index for disputes. Shiller did see some early signs. He released the second edition of the Irrational Exuberance in 2005, when, according to him, the data looked like a "take-off rocket". In his book he expressed skepticism over "long-term house price stability", given that the rise in house prices is much higher than the increase in income. However, he refrained from explicitly declaring that this might be a bubble, after all periods after World War II had seen a real real price increase without the subsequent decline as seen in the chart. Prices peaked in the first quarter of 2006, when the index saved by Shiller recorded the 198.01 level, but fell rapidly thereafter to 113.89 in the first quarter of 2012.

Options and futures based on Standard and Poor's Case-Shiller index are traded on the Chicago Mercantile Exchange.

This index is a simplification of home values â€‹â€‹and does not take into account the reduction of interest and interest on home loans, both included in the consideration of profit/loss for investment purposes.

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Economic implications

Shiller drew some key insights from his analysis of long-term home prices in his book "Irrational Exuberance". Contrary to popular belief, there is no continuous upward trend in house prices in the US and home prices show a strong tendency to return to the 1890 level in real terms. In addition, he illustrates how the pattern of changes in house prices has nothing to do with changes in construction costs, interest rates or population.

Shiller notes that there is a strong perception worldwide that house prices continue to rise, and that such sentiments and paradigms can trigger a bubble in the real estate market. He points to some psychological heuristics that may be responsible for creating this perception. He says that since homes are a rare purchase, people tend to remember the purchase price of a home from the past and are surprised by the difference between past and present. However, most price differences can be explained by inflation. He also discussed how people consistently overestimated the appreciation in the value of their homes. The US Census, since 1940, has asked homeowners to estimate the value of their homes. Homeowner estimates reflect a real 2% per year appreciation, which is significantly more than 0.7% actual increase over the same interval as reflected in the Case-Shiller index.

Shiller also offers some explanations as to why continuous uptrend is not observed in real-house prices:

Mobility: Shiller argues that "people and businesses will, if the house price is high enough, move away, even leave the area completely". The soil may be scarce locally, but urban land area is only 2.6% of the total land area in the United States.
Relieve land restrictions: Increased prices put pressure on the government to reduce land restrictions in terms of how much can be built on a certain amount of land as well as the amount of land available for development.
Technology Improvements: The construction technology has greatly improved the construction of homes to be cheaper and faster, which puts pressure on house prices.

Thus, the actual house price is essentially a trend-less and does not show a sustained uptrend or downtrend in the long run. This is not limited to the US as it is also observed in real-house price indices from the Netherlands and Norway.

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Main events and episodes

Shiller's main observation, as described in his book Irrational Exuberance, is that real-house prices show a remarkable tendency to return to their 1890 levels. However, there are some key periods where prices have dropped from this level. Shiller offers several explanations for these episodes in his book:

1921-1942 : This is the only period in which prices are well below their 1890 level overall. The beginnings of this decline roughly correspond to the start of World War I, followed by the Great Influenza Pandemic of 1918, the Great Depression and finally World War II, all of which, according to Shiller, could negatively affect house prices.
1953-1977: The price remained higher than the 1890 level during this period, though it gradually declined. Shiller mentions the end of World War II, the beginnings of Baby Boom and GI Bill of Rights (1944) that subsidize home purchases. He also claims that the scars of the Great Depression bend a speculative trend.
1976-1982 : Reflects the regional bubble in California.
1985-1989 : Reflects the regional bubble on the West Coast and the East Coast.
1997-2012 : Global boom and boom in real estate.

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National index

National House Price Index S & amp; P/Case-Shiller U.S. is the combined single family home price index for nine US Census divisions. This is calculated monthly, using a three-month moving average. The national S & P index is considered normal to have a value of 100 in January 2000.

The index is stored by Shiller (available on its website at http://www.econ.yale.edu/~shiller/data.htm) updated quarterly, and it is normalized to have a value of 100 in 1890.

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Composite index and city

The S & P index family includes 20 metropolitan area indexes and two composite indexes as aggregates of the metropolitan area. These indices are the three-month moving average. The normalized composite and municipal index has a value of 100 in January 2000.

Index is calculated monthly by Fiserv, Inc. - a company that owns and maintains an index and is issued with a two-month lag on the last Tuesday of each month. Fiserv can provide a deeper view of house prices, at the Post code level above the 10 or 20 Metropolitan Statistical Area (MSA) used by S & P; P.

Index 10 Composite

CSXR is a composite index of house price indices for 10 major Metropolitan Statistical Areas in the United States. This index is published monthly by Standard & amp; Poor and using the Case and Shiller method of the home price index using a modified version of the repeatedly weighted sales methodology. This method is able to adjust the quality of homes sold, unlike the simple index based on the average. CSXR is a three-month moving average like the index that composes it.

The following indexes are combined to create a CXSR composite index:

Composite index 20

SPCS20R is a composite index of house price indices for 20 major Metropolitan Statistical Areas in the United States. This index is published monthly by Standard & amp; Poor and using the Case and Shiller method of the home price index using a modified version of the repeatedly weighted sales methodology. This method is able to adjust the quality of homes sold, unlike the simple index based on the average.

The following indexes are combined to create a composite index of SPCS20R:

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Correlation

Macromarkets.com reported the US index has a slightly negative correlation with stocks and bonds, but a slight positive correlation with commodities and the Real Estate Investment Trust (REIT). REIT keeps track of commercial real estate closest, rather than home prices, explains the low correlation.

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Historical value

Using the original methods of Case and Shiller, the national index reached an all-time high of 198.01 in 2006 Q1. The S & P index hit an all-time high in July 2006, with a value of 206.52. As of December 30, 2008, the index recorded its biggest year-on-year decline. Since World War II, indigenous indices have largely fluctuated between 100 and 120, with peaks (followed by steep fall) in 1Q 1979 (which peaked at 122), 3Q 1989 (at 126), and 1Q 2006 (at 198). After the housing bubble of the 2000s, the lowest point of the index was in 1Q 2012, at 114. In 4Q 2013, the index has rebounded to 134.