Real Life Real Estate Math: What an agent needs to know about the Case Shiller Index
Earlier this week, the S&P released the Case-Shiller Indices for January 2011. As a real estate agent, you should be familiar with this real estate math term and what the numbers mean. There are varying opinions on the usefulness of the Case-Shiller Index for real estate professionals. This post breaks down what you need to know about the Case-Shiller Index and the pros and cons.
What is the Case-Shiller Index?
The Case-Shiller Index is a collection of indices that describe nationwide trends in the housing market. While there are six indices published each month, the most popular and widely cited index is the Home Price Index.
According to the S&P, “The S&P/Case-Shiller National U.S. Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly. The S&P/Case-Shiller Composite of 10 Home Price Index is a value-weighted average of the 10 original metro area indices. The S&P/Case-Shiller Composite of 20 Home Price Index is a value-weighted average of the 20 metro area indices.”
- Show nationwide trends – The index essentially provides a 30,000ft overview of the U.S. Housing Market and allows professionals to see what has historically (not forecasting) been happening in the market.
- Widely Recognized Statistic – Since the Case-Shiller Index is widely discussed in news reports, many buyers and sellers are familiar with the index. As a real estate professional, you can use the statistic to your advantage since you will be confirming what they’ve heard in the news.
- Key trend in discussing economic recovery – Regardless of its debated usefulness, it is still widely considered the best way to understand the U.S. Market and is a key statistic for policymakers in determining the status of the U.S. economy and direction of economic policies.
- The data is old – The Index released this past week is based on housing data from 60 days ago, so there may be different trends that are currently happening in today’s market that you won’t be able to see until 2 months from now.
- Limited coverage – The Index only tracks 20 major cities. If you don’t live in one of these cities, the national trends may not be the same for your local area.
- Limited to single-family homes with repeat sales – Because the Index tracks sales of the same homes over time, it is limited to single family homes that have been resold. It does not track condos, multi-family, or new construction. If these types of homes are a big percentage of the housing industry in your area, the Index may not be as relevant to you.
In any case, all real estate is local. While it’s important to keep an eye on the national trends and what’s in the news, as an agent, you need to understand what the current situation is in a particular neighborhood for your specific client.
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