The Differences between House Price Indexes
The housing market continues to be a major focus of the media and researchers as the U.S. climbs of the past recession. There are no shortages of indexes to measure house prices on a national level, and while these indexes often move in similar directions, they can also diverge or show otherwise different results. Understanding the differences in these indexes, which were covered in a past article in The Regional Economist, can help with understanding these observed disparities.
Observed changes in prices could be due to changes in the composition of houses sold, rather than market conditions. For that reason, tracking the price of a random sample of houses over time would be ideal. But that is not feasible as not all houses would be for sale at a given point in time. These limitations shed light on why there are several indexes with varying methodologies. Some are median house price indexes, which simply track the prices of houses sold over time. Others use a “repeat sales” methodology, which measures price changes of the same house between a previous and current sale. Both are important for examining house price trends.
Median Price Indexes
The National Association of Realtors (NAR) index dates back to 1968 and is a median price index. The data come from surveys of sales of existing single-family houses from NAR affiliates. The national median is calculated by value-weighting the median within each of the nation’s four census regions by the number of single-family homes in each region.
The Census Bureau index is similar to the NAR index, but it covers new houses as opposed to existing houses. Consequently, the Census index is typically higher than the NAR index, as new houses have historically been higher-priced than existing houses.
Repeat Sales Indexes
Indexes of repeat sales are more commonly cited than median indexes because they control for quality of houses. Three of the most well-known are:
- The Federal Housing Finance Agency index
- The S&P/Case-Shiller national index
- The CoreLogic Index
The FHFA index is published quarterly and goes back to 1975. The most significant difference between this index and the other two repeat sales indexes is that it collects data from mortgages that have been purchased or securitized by Fannie Mae or Freddie Mac only. It also equal-weights house prices and includes refinances, whereas the Case-Shiller and CoreLogic indexes do not.
The Case-Shiller and CoreLogic indexes include all available arm’s-length transactions on single-family homes, including sales financed with nonconforming mortgages, such as jumbo, Alt-A and subprime mortgages. As a result, these indexes include sales of higher-priced homes and transactions with more-volatile sales prices. As indicated earlier, these two indexes value-weight transactions so that higher-priced homes have greater effects on the index.
There are two significant differences between the Case-Shiller and CoreLogic indexes. The Case-Shiller series employs an interval-weighting procedure that places greater weight on repeat sales with shorter intervals, while CoreLogic does not. 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 series.
- Housing Market Conditions
- On the Economy: Homeownership and House Prices No Longer in Sync
- On the Economy: Many Households Remain Underwater on Their Mortgages