The Wilder View

S&P Case-Shiller Housing Index Probably Overweights Foreclosure Sales

The monthly S&P Case-Shiller home price index has been around since the 1980’s. And it seems to be the most-followed index of housing values and is said to be the superior measure of home values in current market conditions. The S&P Case Shiller index matches sales (tracks the prices) across all types of mortgages, conforming and non-conforming. The monthly FHFA house price index (formerly OFHEO) tracks just home sales of mortgages that conform to standards (limits) set by Fannie Mae and Freddie Mac.

But it does look like the S&P Case Shiller index is becoming increasingly focused on foreclosures; hence, it is forming a bias to the downside of home price values.


The chart above illustrates how the sales pair counts compare to their sample average (y-axis) and the associated loss in home values from the peak through April 2009 (x-axis) across the 20 metropolitan areas that go into the monthly composite-20 S&P Case Shiller home price dex. You can get the sales pairs (the matching home sales) and home value data here and see a short description of the full methodology here. Let me be very clear about the y-axis: it is the average share of sales pair counts for 2009 (January to April) minus the average share of sales pair counts across the entire sample of data for each metropolitan area in the composite 20.

What I notice is that the sales pair counts are becoming increasingly weighted toward the biggest bubble – i.e., foreclosure – metro areas: LA, San Diego, Phoenix, etc. Sales in these areas are really dragging down the overall value of the index. Presumably, the foreclosure sales are weighted less heavily, but it is somewhat suspect to me that the share of Phoenix’s housing market, for example, has increased its share of pair counts by 8.7% over its sample average, 5.4%.

The FHFA index is much broader geographically and incorporates the whole of the census regions (see the release here). In contrast, the S&P Case Shiller index’s geographic net is pretty thin. Below is a table that relates the share of each state’s stock of housing (out of the total) to the share of pair counts included in the S&P Case Shiller composite 20. For example, California owns 10.4% of the total housing stock, but receives a 25% weight in the Case Shiller index.


The S&P Case Shiller index is most certainly a step up from the median or the mean (reported by the National Association of Realtors). Even the Fed previously used it to measure real estate values in the Flow of Funds accounts (it now incorporates the FHFA measure of home values). But I do wonder what information it is really giving us. S&P Case Shiller is not the end-all, be-all to home price values, and probably overweights the index on foreclosure sales.

Originally published at News N Economics and reproduced here with the author’s permission.

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