Case-Shiller index

The Case-Shiller Home Price Indices measure the nominal value of the residential real estate market in the United States. A popular and widely used subset of the Case Shiller Index is the 20 MSA view used by Standard and Poors in the S&P/Case Shiller Home Price Index. [http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf S&P/Case-Shiller Home Price Indices Methodology] [http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,3,1,0,0,0,0,0.html S&P/Case-Shiller Home Price Indices Data] The indices use repeat sales pricing technique to evaluate the housing markets. The approach, developed by economists Karl Case, Robert Shiller and Allan Weiss, uses data on single-family home re-sales, and re-sold sale prices to form sale pairs. This index family includes 20 regional indices and two composite indices as aggregates of the regions. The MSA indices are three month moving averages. Consequently, so are the composite indices.

The indices are calculated monthly by Fiserv, Inc.- the company that owns and maintains the index and is published with a two month lag on the last Tuesday of every month. Fiserv can provide a deeper view of home prices, at the zip code level beyond the 10 or 20 MSA view used by S&P.

The S&P/Case-Shiller U.S. National Home Price Index is a composite of single-family home price indices for the nine U.S. Census divisions, calculated quarterly.

Returns and correlations

Macromarkets.com reports [ [http://www.macromarkets.com/csi_housing/index.asp Welcome to MacroMarkets ] ] the US index has a slightly negative correlation with stocks and bonds, but slightly positive correlation with commodities and REITs. Surprisingly the correlation with REITs is relatively low.

For the past 10 years, the CS US index had a lower return (176%) than stocks (367%) however with lower volatility and thus a higher Sharpe ratio.

Valuation

A possible way to evaluate property is to take the price to rent ratio, akin to P/E for stocks, and compare it with the cap rate (annual return).

In Atlanta the cap rate is 6% (2006 data), giving a price-to-rent ratio of 100/6 = 16.7, comparable to S&P P/E of 18. [http://www.forbes.com/forbes/2006/0605/142sidebara.html Your Castle's P/E Ratio] On the other hand, in San Francisco, cap rate is 3%, giving a price-to-rent ratio of 100/3 = 33, suggesting real-estate to be overvalued in San Francisco.Fact|date=August 2008

Recent values

The national index peaked at 189.94 in Q2, 2006 and is now declining (see table below).

{|class="wikitable"
-!colspan="3"|Selected Quarterly S&P/Case-Shiller Index Values
-!YEAR ||QTR ||Index
-
1987 ||Q1 ||62.03
-
1988 ||Q1 ||66.67
-
1989 ||Q1 ||72.43
-
1990 ||Q1 ||75.58
-
1991 ||Q1 ||73.43
-
1992 ||Q1 ||74.30
-
1993 ||Q1 ||74.46
-
1994 ||Q1 ||76.46
-
1995 ||Q1 ||77.74
-
1996 ||Q1 ||79.61
-
1997 ||Q1 ||81.82
-
1998 ||Q1 ||85.71
-
1999 ||Q1 ||92.08
-
2000 ||Q1 ||100.00
-
2001 ||Q1 ||109.27
-
2002 ||Q1 ||118.00
-
2003 ||Q1 ||130.48
-
2004 ||Q1 ||146.26
-
2005 ||Q1 ||169.19
-
2006 ||Q1 ||188.66
-
rowspan="3"|2007
|Q1 ||185.45
-
|Q3 ||180.45
-
|Q4 ||170.64
-
rowspan="2"|2008
|Q1 ||159.18
-
|Q2 ||155.32
-

ee also

* House price index
* Real estate appraisal
* Real estate pricing

References