Case-Shiller index

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The S&P/Case-Shiller Home Price Indices measure the nominal value of the residential real estate market in 20 metropolitan regions in the United States.[1][2] The indices use repeat sales pricing technique to evaluate the housing markets. The approach, developed by economists Karl Case, Robert Shiller and Allan Weiss, uses data on single-family home re-sales, and re-sold sale prices to form sale pairs. This index family includes 20 regional indices and two composite indices as aggregates of the regions.

The indices are calculated monthly and published with a two month lag on the last Tuesday of every month.

The S&P/Case-Shiller U.S. National Home Price Index is a composite of single-family home price indices for the nine U.S. Census divisions, calculated quarterly.

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[edit] Returns and correlations

Macromarkets.com reports that [3] the US index has a slightly negative correlation with stocks and bonds, but slightly positive correlation with commodities and REITs. Surprisingly the correlation with REITs is relatively low.

For the past 10 years, the CS US index had a lower return (176%) than stocks (367%) however with lower volatility and thus a higher Sharpe ratio.

[edit] Valuation

A possible way to evaluate property is to take the price to rent ratio, akin to P/E for stocks, and compare it with the cap rate (annual return).

In Atlanta the cap rate is 6% (2006 data), giving a price-to-rent ratio of 100/6 = 16.7, comparable to S&P P/E of 18[4]. On the other hand, in San Francisco, cap rate is 3%, giving a price-to-rent ratio of 100/3 = 33, suggesting real-estate to be overvalued in San Francisco.

[edit] Recent values

The national index peaked at 189.94 in Q2, 2006 and is now declining.

YEAR    QTR     S&P/Case-Shiller U.S. National Home Price Index
1987    Q1      62.03
1988    Q1      66.67
1989    Q1      72.43
1990    Q1      75.58
1991    Q1      73.43
1992    Q1      74.30
1993    Q1      74.46
1994    Q1      76.46
1995    Q1      77.74
1996    Q1      79.61
1997    Q1      81.82
1998    Q1      85.71
1999    Q1      92.08
2000    Q1      100.00
2001    Q1      109.27
2002    Q1      118.00
2003    Q1      130.48
2004    Q1      146.26
2005    Q1      169.19
2006    Q1      188.66
2007    Q1      185.45
2007    Q3      180.45
2007    Q4      170.64
2008    Q1      159.18

[edit] See also

[edit] References

  1. ^ http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf S&P/Case-Shiller Home Price Indices Methodology
  2. ^ http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,3,1,0,0,0,0,0.html S&P/Case-Shiller Home Price Indices Data
  3. ^ Welcome to MacroMarkets
  4. ^ http://www.forbes.com/forbes/2006/0605/142sidebara.html Your Castle's P/E Ratio
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