Case-Shiller Home Price Index
Why is this important?
Home prices are an indicator of economic health. In a strong economy, people feel confident investing in home ownership as a substantial expense. For individuals, a high Case-Shiller index also indicates a potential for wealth creation from the sale of a home, but also signifies that homeownership may be becoming less available to first-time homebuyers and lower-income households. Home prices are one way to compare the economic health of different regions as an indicator of demand or desirability. They are also an indicator of how businesses that have a stake in the housing sector are performing; lenders are willing to originate mortgages and adding housing units may be attractive due to low supply and high demand.
The Case-Shiller Index measures changes in the price of single-family, detached residences using a repeat-sales method that compares the sales price of the same properties over time. It includes homes that have sold before and but excludes new construction and condos or homes that have been extensively remodeled since it would not possible to compare change in price on the same unit. The index includes “arms-length” sale transactions in which the home was sold at market rate to get an accurate snapshot of a housing market. Below market sales to family members are excluded, but foreclosure sales between a bank and an individual are included in the index, since they are considered both arms-length and repeat sales [i].
[i] Fontinelle, Amy. “Understanding the Case-Shiller Housing Index. Investopedia. Web. 28 June 2017. <http://www.investopedia.com/articles/mortgages-real-estate/10/understanding-case-shiller-index.asp>.