Karl Case, housing economist and co-creator of the Standard & Poor’s (S&P) / Case-Shiller Home Price Index, is dead at 69. Without his and Robert Shiller’s combined work, our knowledge of the housing market would be vastly inferior, and we offer our thanks to the contributions Case made to the study of home price movement.
Case began working with Shiller in the mid-1980s. Together, the two authored numerous papers on housing economics, and went on to correctly forecast the Millennium Boom bubble and bust.
Likely their most important contribution to the everyday lives of real estate professionals nationwide was the Case-Shiller Home Price Index, the most-cited home price index by members of the media, including first tuesday.
The main difference between the Case-Shiller and other home price measures is Case-Shiller separates its index into three price segments of the housing market:
- low-tier sales;
- mid-tier sales; and
- high-tier sales.
Homes fit within these price tiers based on their original tier. That is, a mid-tier home will never become a low- or high-tier home based on market fluctuations alone. It will always be considered a mid-tier home due to its original sales price, regardless of how its price changes. In turn, the floor and ceiling for the home tiers change with market influences.
Viewing home price changes through the multi-tiered lens provided by Case-Shiller is most helpful for understanding how prices have changed and will likely adjust in the future. This is because average prices tell only a small part of what’s happening in the real estate market — the average price is an abstraction and cannot be applied to any single property. On the other hand, the tiered price approach narrows down the price picture somewhat.
The Case-Shiller index uses the repeat sales method. In other words, it only counts homes which have sold at least twice, and only single family residences (SFRs) at that. This allows it to compare how a home’s price has changed over time. When aggregated with other repeat sales in the area, Case-Shiller produces an index number for a specific region.
We’ll conclude our tip of the hat with a selection from the poem Reflection on the Housing Market: Seven Years after the Fall authored by Case and presented at a 2014 Yale University conference honoring Shiller, reprinted in the Wall Street Journal:
So now we come to the end of this ode
Without much to say for certain
I hate to say, that’s where we are
Not beginning nor final curtain
The truth of the matter at the end of the day
Is that markets will make you humble
Just when you think that it’s time for a drink
They will turn and fortunes will crumble
That free markets work to provide what we want
Is a notion that’s not in dispute
The problem is that once in a while
Markets overshoot
And when they do in a market so large
A lot of people feel pain
In the blink of an eye many gave back
What it took 10 years to gain
Among those who are getting the blame
A few deserve to be flayed
But a forecast can only be judged against
What we knew at the time it was made
Sometimes the future is like the past
And sometimes it is not
But when it comes to what we know
The past is all we’ve got
Of course there is greed and there is a need
For moral hazard and rules
And for figuring out the effectiveness
Of the new financial tools
Politicians, of course, are starting to shout
That they want more retribution
It’s better, I think, if they used their time
Helping to find a solution.
