The Science of Repeat Sales
CoreLogic Case-Shiller Indexes use the repeat sales method for index calculation, analyzing data on single-family properties that have two or more recorded sales transactions. Changes in housing types and sizes or physical characteristics are specifically excluded from the calculations to avoid affecting the index value incorrectly.
The principal variable used in index calculations is the price change between two arms-length sales of the same single-family home. For each sales transaction, a search is conducted to acquire information on any previous sale of the same property. If an earlier transaction is found, the two are paired and considered a “repeat sales transaction.”
Each sales pair is examined to eliminate factors that might distort the calculations, including:
- Non-arms-length transactions (e.g., transfers between family members)
- Transactions in which the property type designation has changed
- Any suspect data
Sales pairs with approved data are aggregated with all other sales pairs found in a particular Census division, state, metro area, county or zip code market to independently calculate each Case-Shiller model. The national index is a composite of the Case-Shiller Census division indexes.
Different weights are assigned to different changes in home prices, based on their statistical distribution in that geographic region. The weighting schemes include:
- Price Anomalies – Smaller weights are assigned to homes that appear to have changed in quality or to sales that are not otherwise representative of market price trends
- High Turnover Frequency – Homes that sell more than once within six months are excluded from the calculation of any index
- Time Interval Adjustments – Longer sales pair intervals are assigned less weight than pairs with shorter intervals
- Initial Home Value – Each pair is assigned a weight equal to the first sale price
Both price anomalies and longer time intervals can indicate physical changes to a home. High turnover frequency and shorter intervals can indicate that the transaction is not at arms-length, precedes or follows the property’s redevelopment, or is fraudulent. The index then tracks the aggregate/average value of all homes in the market.