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How Does Case Shiller House Price Index Work?

Wed Jan 06 2021 14:06
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The US housing market is one of the major segments of the economy of the country. There are many role players in this market also. Investors, buyers, sellers, and developers are the major ones. They all keep an eye on this segment. 

Are you also researching this market? Then most probably you are using the Case Shiller house price index.  

Researching the US market is not possible without this index. It sounds a little bit confusing, that is why newcomers don't use it. But it can give you broad information about the US housing market. 

It is not only a single housing price index but it provides a broad scenario of the economy also. From its foundation to its working procedure, we will discuss it. 

Who Founded Case Shiller House Index? 

The Case Shiller house price index was formed by two economists. An Economist called Allan Weiss founded it with Karl Case and Robert Shiller. 

It is not a federal housing technique, but one of the major housing indexes. Housing finance details are grabbed from metropolitan areas to evaluate the properties in different areas.  

Major Components of Case Shiller House

The Case Shiller house price index includes four vital parts. These four components are four different indexes. They are released seasonally. From the average price to nominal transactional costs and median charges, everything is included. 

These price indexes have details about interest rates too. They are monitored by higher authorities such as a federal housing finance agency.  

National Price Index 

The first component is the National index. From the housing bubble to housing affordability, the national index has everything. It is one of the major real estate market indexes. 

This housing index is used to track the nine census divisions of America. It targets single-family property prices.  

10-City Index 

The next major index in the Property market is the 10-city index. No doubt it is also about the mortgage rates. But it covers the home sales and purchases of ten cities in the USA. These ten cities are Chicago, Washington, Miami, San Diego, San Francisco, Boston, Denver, Los Angeles, and Las Vegas.  

20-City Index 

As its name states that it covers the family homes of 20 cities. It also gets affected by market volatility. From price appreciation to interest rate, it provides complete information. 

It is one of the major indexes in the Case Shiller House price index. It guides home buyers to avoid selling or buying during hard times like economic recession.  

Individual Metro Area Index 

This index is simply about the 20 metro areas. It covers only twenty metro area house price data. Single-family homes are the target asset. They take information from the land registry, surveyors, and neighborhood. 

They also capture the house price growth to evaluate the property-price. Lender terms, real estate prices, rents, and many more things are considered.  

Publishing Period Of Case Shiller 

These four major components or indexes are released in different time-periods. Some of them are more useful in the first quarter. While others are useful all over the year. A finance agency can also use it for property valuation. 

The national index is always published quarterly. It is published on the last Tuesday of the last month of each quarter. While the other three indexes of the Case Shiller House price index are published last Tuesday every month.  

Case Shiller House Price Index - How does it works? 

Now let's get to the point. The major topic is how the Case Shiller house index evaluates a family-home. How does it declare the housing boom and home values? Year over year, it is releasing reports for various cities. How is it useful for a residential property owner? Let's figure it out. 

Understand the Repeat Sales Method 

It grabs all the price gains, annual rate, and previous sale details. Maybe they get it from the Bureau of statistics or any other authority. Now after that, they analyze and produce it as an index.  

Arms Length Sales Transactions 

The major factor that this index tracks is Arm's length of sales transactions. These sale transactions occur when a house is sold at the market price. 

Ignoring the median price and income data, the market price is considered. No matter how much house prices rise during the past few years. The seriously considered thing is the current market price. 

New Houses Are Not Included 

Here is something that you may don't know about the Case Shiller house index. New housing property is never included in it. They never track the property of a first-time buyer. They always look for the housing data of a house with more owners.  

Should I Consider the Case Shiller House Index? 

Now you may ask that you should consider the Case Shiller house index or not. If you belong to the USA then it is important. But if you are an outsider then you can use other indexes also. Like US house prices are evaluated by another agency.  

Almost every country has an office for national statistics of home value. These authorities are responsible for the stamp-duty prices, mortgage lending, homeownership, consumer-price, and real-terms. So should you consider the Case Shiller house index or not? Read it below.  

Not Only House Pricing 

This house index is more than a house pricing index. It is more about the whole economy. It can predict the financial crisis going to occur in other segments. 

Never ignore it just because you don't want to buy a house. Consider it if you are a trader, investor, or even a small business. Because it talks more about the economy, rather than just the property. 

Conclusion - Case Shiller House index 

Concluding the Case Shiller House index and it's working procedure is not simple. Because there are many important things to talk about. That is why we have explained everything. Because it is all up to you what you decide for you. 

But you need more skills if you want to analyze it for other markets. With no doubt, this index has a relation with other markets also. It is a relation between real estate and other markets. Whether it is the forex market or stock exchange. 

They all are interlinked with each other. The real estate segment is also linked with the other markets. That is why it is important to consider the Case Shiller house pricing index.  
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