At least early in the financial crisis, the high rate of foreclosures seemed to be due more to households' overreaching than to predatory lending. A disproportionate number of those being foreclosed on were well-educated, well-off and relatively young people.Housing - Prices

Bryan J. Noeth

Rajdeep Sengupta

English

Research Papers in Economics

16   The Regional Economist  |  July 2011 The Regional Economist  |  www.stlouisfed.org   17
housing
A Closer Look 
at House Price Indexes
By Bryan Noeth and Rajdeep Sengupta
C
entral to economic events of recent 
times were the rapid increases in house 
prices after 1995 and the ensuing downturn 
in those prices around 2006-07.  Naturally, 
the importance of accurate measurement of 
house price trends can hardly be overem-
phasized.  Several prominent house price 
indexes have been developed for the United 
States.  These include the National Associa-
tion of Realtors (NAR) median index, the 
Census Bureau median index, the S&P/
Case-Shiller national index, the CoreLogic 
index and the Federal Housing Finance 
Agency (FHFA) index.
1  Each differs in 
methodology, in its emphasis on the various 
segments of the housing market or both.  To 
the casual observer, the difference in price 
changes recorded on each of the indexes 
can be perplexing.  Therefore, knowing how 
the indexes differ from one another can be 
instructive as to which index to follow. 
Housing price indexes are calculated by 
tracking home prices in a given region over a 
period of time.  Ideally, one would track the 
price of a random sample of houses.  How-
ever, this method has operational problems 
because, at any particular point in time, not 
all houses are for sale; additionally, there may 
be variations in the type of houses sold.  If 
one merely tracked the price of homes sold 
over time (e.g., as is found in median house 
price indexes, such as the NAR and the 
Census indexes), observed changes could be 
due to changes in the composition of homes 
sold as opposed to changes due to market 
conditions.  Dealing with houses that differ 
in “hedonic” characteristics—such as the 
square footage, number of bedrooms and 
distance from city center—can be tricky.
To deal with these issues, economists 
have adopted a “repeat sales” methodology, 
which measures price changes of the same 
house between a previous and current sale.
2  
Examples of repeat sales indexes include the 
Case-Shiller, CoreLogic and FHFA indexes. 
This method allows economists to control for 
home characteristics—the previous sale price 
being considered an appropriate surrogate 
for the hedonic information.  An obvious 
limitation is the omission of sales of new 
homes.  Additionally, to maintain consis-
tency, repeat sales indexes often drop houses 
that have undergone major improvements or 
deterioration.  Consequently, this method’s 
calculations require a large number of repeat 
sales, which can be problematic for nonmet-
ropolitan areas and also during downturns.  
Finally, it has been shown that repeat sales 
with larger time gaps in between transactions 
have greater variance, leading some indexes 
to adjust their weight downward. 
Two median price indexes are notewor-
thy: the NAR index and the Census Bureau 
median index.  The former dates to 1968.  The 
data come from surveys of sales of existing 
single-family homes from NAR affiliates.  
The national median is calculated by value-
weighting the median within each of the four 
census regions in the country by the number 
of single-family homes in each region. 
The Census Bureau median index differs 
from the NAR index mainly in that the for-
mer covers new homes as opposed to exist-
ing structures.  Consequently, the Census 
median index is typically higher than the 
NAR index (see Figure 1) since, historically, 
new homes have been higher-priced than 
existing homes.  In terms of both indexes, 
prices have clearly fallen since their peaks 
in 2006-07.  However, the gap between the 
two has widened recently, largely due to 
the steeper decline in the NAR index.  One 
possible reason:  Existing homes have seen 
an increase in foreclosures and short sales, 
placing downward pressure on the NAR 
index.  Distressed sales are less of a concern 
in the market for new homes, and the Cen-
sus median index has not fallen as sharply.
Indexes of repeat sales are more com-
monly cited than median indexes.  The 
FHFA index is published quarterly by the 
FHFA and goes back to 1975.  The FHFA 
also publishes several other indexes, includ-
ing regional, state, metropolitan, purchase 
only, average and median price indexes on a 
monthly and quarterly basis. 
Standard & Poor’s publishes the Case-
Shiller proprietary family of indexes, which 
includes quarterly national, monthly  
10- and 20-composite metropolitan area, 
and individual metropolitan series. 
The final index is the monthly CoreLogic 
index, a proprietary index published by  
CoreLogic and dating to 1976.  Additionally, 
CoreLogic publishes a variety of indexes 
based on property locations, price tiers, prop-
erty types, loan types and distress levels. 
Among the three major repeat sales 
indexes, the FHFA index is significantly 
different from the other two.  FHFA collects 
data from conforming mortgages only (i.e., 
those securitized by Fannie Mae or Fred-
die Mac).
3  The Case-Shiller and CoreLogic 
indexes, however, include all available arm’s-
length transactions on single-family homes, 
including sales financed with nonconform-
ing mortgages—such as jumbo, Alt-A and 
subprime.  As a result, these indexes include 
sales of higher-priced homes (those financed 
with jumbo mortgages) and transactions 
with more-volatile sales prices (those 
financed by Alt-A or subprime mortgages).  
Moreover, unlike the FHFA index, the Case-
Shiller and CoreLogic indexes value-weight 
transactions so that higher-valued homes 
have greater effect on the index.
4  A final 
distinction is that the FHFA index includes 
refinances, whereas the Case-Shiller and 
CoreLogic indexes do not.
5
While the Case-Shiller and CoreLogic 
indexes are similar, they are different on 
two counts.  In addition to value-weight-
ing, the Case-Shiller series employs an 
© spark studio/getty images
interval-weighting procedure that places 
greater weight on repeat sales with shorter 
intervals. Such a weighting scheme is not 
adopted by CoreLogic.  Also, CoreLogic has 
larger coverage because it includes mortgage 
data in place of public records in states with 
nondisclosure laws.  This helps it obtain a 
broader coverage by including some states 
with nondisclosure laws that are omitted in 
the Case-Shiller index.
Figure 2 shows various repeat sales 
indexes.
6  Notably, the FHFA index is flat-
ter than the other two indexes.  First, the 
CoreLogic and Case-Shiller indexes place 
more weight on higher-valued homes; so, 
if higher-priced homes have larger appre-
ciations and, subsequently, larger depre-
ciations, then these indexes will likely see 
larger swings.  Second, the FHFA index is 
less volatile because it does not include non-
conforming loans.  Combined, these factors 
can help explain why the FHFA index is 
flatter than the other two series.
Not surprisingly, the CoreLogic and 
Case-Shiller indexes tend to move together 
because of their similar computation and 
included loan types.  However, the Core-
Logic index tends to be slightly higher than 
the Case-Shiller national index.  This is pos-
sibly due to the smaller weight on lengthier 
intervals between sales in the Case-Shiller 
index.  Stated differently, the statistical pro-
cedure used in the Case-Shiller index likely 
mitigates the influence of sales pairs with 
extreme price changes. 
It is not always a fact that home price 
indexes move in tandem.  It is not difficult 
to record instances where changes in home 
prices differ in both direction and magni-
tude.  This is true, for example, of the FHFA 
and Case-Shiller indexes for the second 
quarter of 2010.  The differences in meth-
odology and composition determine the 
behavior of each index at different points in 
time.  Knowledge of individual index calcu-
lation aids in understanding the observed 
disparities among the indexes. 
Rajdeep Sengupta is an economist and Bryan 
Noeth is a research associate, both at the 
Federal Reserve Bank of St. Louis.  See http://
research.stlouisfed.org/econ/sengupta/ for more 
on Sengupta’s work.
ENDNOTES  
 1  The FHFA house price index was formerly 
titled the OFHEO index.
 2  This methodology was developed by Bailey, 
Muth and Nourse and was later modified by 
Karl Case and Robert Shiller (1987, 1989). 
 3  See http://en.wikipedia.org/wiki/ 
Non-conforming_mortgage  
 4  See Aubuchon and Wheelock.
 5  The FHFA also publishes a purchase-only 
index that excludes refinances.
 6  Note that the Case-Shiller index is quarterly, 
whereas the CoreLogic is monthly.
REFERENCES
Aubuchon, Craig P.; and Wheelock, David C.  
“How Much Have U.S. House Prices Fallen?”  
Federal Reserve Bank of St. Louis National 
Economic Trends, August 2008.
Bailey Martin J.; Muth, Richard F.; and Nourse, 
Hugh O.  “A Regression Method for Real  
Estate Price Index Construction.”  Journal  
of the American Statistical Association,  
December 1963, Vol. 58, No. 304, pp. 933-42.
Case, Karl E.; and Shiller, Robert J.  “Prices of 
Single-Family Homes Since 1970: New  
Indexes for Four Cities.”  New England  
Economic Review, September/October 1987,  
pp. 45-56.
Case, Karl E.; and Shiller, Robert J.  “The  
Efficiency of the Market for Single-Family 
Homes.”  American Economic Review,  
March 1989, Vol. 79, No. 1, pp. 125-37.
Figure 2
Repeat Sales Indexes
sourCes:  CoreLogic, standard & poor’s and Federal Housing 
Financing agency/Haver analytics
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Figure 1
Median Price Indexes
sourCes:  National association of realtors and the Census 
Bureau/Haver analytics
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S it is not always a fact that home price indexes move in tandem. 
it is not difficult to record instances where changes in home 
prices differ in both direction and magnitude.

A Regression Method for Real Estate Price Index Construction.”

How Much Have U.S. House Prices Fallen?” Federal Reserve Bank of St. Louis National Economic Trends,

Prices of Single-Family Homes Since 1970: New Indexes for Four Cities.” New England Economic Review,

The Efficiency of the Market for Single-Family Homes.” American Economic Review,

A closer look at house price indexes

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A closer look at house price indexes

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