Wednesday, March 30, 2011

House Price Index Comparison

This is a rather technical note, probably of little interest to most readers. The most recent release of the Case-Shiller house price index (HPI) came out yesterday. The results were, unsurprisingly, not particularly good.

However, this reminded me that we should consider ourselves rather lucky to have such good data on house prices. During the inflation of the housing bubble in the first half of the 2000s, it was difficult to get reliable and detailed data on house prices in the US. The best data that was publicly available was a quarterly dataset put out by the Office of Federal Housing Enterprise Oversight (OFHEO), which has since been renamed the Federal Housing Finance Agency (FHFA). However, the OFHEO/FHFA HPI had certain shortcomings, primarily having to do with the fact that its analysis is restricted to houses with non-jumbo mortgages, so its results had to be used with a bit of caution.

Then along came the Case-Shiller HPI, which avoided the principal shortcomings of the OFHEO HPI. It wasn't publicly available until 2007, but now is released monthly. I've been curious about how different the two indexes are, or put another way, how flawed the OFHEO/FHFA data is when compared to the Case-Shiller HPI, which is widely considered to be more accurate.

The following table summarizes the differences between the two indexes over the past decade. I split the analysis into several major cities and two different periods to get a bit more texture.

I'm a bit surprised that the two indexes have been as close as they have been. No, they're not identical, and in one case the difference between the two reaches 10%. But overall, I'd say they match pretty well, particularly for something as inherently difficult to measure as house prices. It's always reassuring when two different methodologies come up with roughly the same answer.


  1. spencer11:43 AM

    Just a technical point that is more of a nit-pick than anything.

    But the two measures are using the same methodology -- repeat sales as compared to other methodologies like the realtors indices that just measure the average price of homes that happen to sell in a given time period.  The repeat sales methodology is clearly superior.

    Other wise I agree with you completely and you point is well worth making..

  2. Is it me or did house prices in NY and Chicago that are financial centers drop less than most other cities displayed in the matrix? Is this a manifestation that propping up the financial markets is putting a floor on house prices in these cities as well?
    The other city that the decline was less pronounced is the DC, where government employment is putting a floor on job you think these are valid points or is there some other explanation that I'm missing?

  3. Spencer: good point - I meant that the samples used by each index are different.  So a more accurate way for me to have phrased it would have been "it's always reassuring when two different samples come up with roughly the same answer."

    Nick: For DC I definitely agree that the economy has done relatively well since the recession didn't hurt federal employment as hard as the rest of the economy.  For Chicago, I think the main reason they didn't fall so much is that they never rose as high.  For NY it's true, prices didn't fall as much as in other cities with similar appreciations.  I'm not sure how much of that is due to the financial sector, but it's a possibility.

  4. Thanx for taking the time to answer Kash...cheers