Katharine Coman and A. Barton Hepburn professor of economics, Wellesley College

Jennifer E. Garrett

As published in Scotsman Guide's Residential Edition, April 2009.

Economics professor Karl E. Case has been tracking home prices since the 1980s, when he and Robert Shiller created the S&P/Case-Shiller Home Price Index. The index has drawn considerable attention of late for tracking monthly housing-market changes in 20 U.S. metropolitan areas -- showing how far and how fast values have fallen. Case shares some background on the index and his views on the current market.

How does the index work? We look at all the transactions that occur. If they are [by] an institutional seller but a free-market buyer, we count [them]. But if it's a bank buying out of a foreclosure auction, we don't because those are artificial prices.

RECENT Q&As ___________________________ Residential edition March 2009: Larry Platt, K&L Gates LLP: "It is going to be hard to be a broker in the next few years." February 2009: Howell Jackson, Harvard Law School: "Hopefully, 2009 will be a year of substantial modifications, with the restoration of more traditional, private financing." January 2009: Faith Schwartz, HOPE NOW Alliance: "We are effectively working through the investor community and the counseling community to help people contact their servicers and get advice." December 2008: Nicolas Retsinas, Joint Center for Housing Studies: "The best long-run predictor of the housing market is household formation. An important part of that is immigration."

We then look up when all those properties changed hands last and compare. We try to control for physical changes in the structure of the unit -- if it [has been renovated to have] more bedrooms or fewer rooms overall, we drop it. We're interested in looking at what happens to prices for units that are maintained over time.

What areas does the index cover? We take all repeat sales on a metropolitan-area basis, and we splice them together in what's called a weighted repeat-sales index. It's meant to capture appreciation and depreciation, and it gives you an average for a metropolitan area.

We also publish what are called tier indexes -- a high, middle and low tier -- and it is the low tier where most of the volatility has been.

How does your index differ from other market reports, such as those from the National Association of Realtors? It was developed in response to the overuse of median values. That median home price doesn't really tell you anything about how much of a change is because of an increase or decrease in price from month to month, but it can be because of changes in the [sales] mix. If more low-end properties happen to change hands, the median will go down.

The [Office of Federal Housing Enterprise Oversight] House Price Index is only computed with data that Fannie Mae and Freddie Mac have. So if a mortgage goes to Wall Street, they don't have it. [That index] doesn't come down very much because they don't have a lot of the nonconforming and bad loans. We cover every sale.

What do you see happening in the housing markets? The bad news is prices are still falling. On the other hand, these auction sales that are largely dragging the big decreases are concentrated in four states: California, Florida, Arizona and Nevada. If you look at areas that didn't see that housing glut, they are down 16 percent or less over a three-year period -- and that's hardly freefall.

Certainly, in the next quarter, you'll see more of the same. But I think sooner or later, [home prices in] some of these markets, like Boston or Charlotte, [N.C.,] are going to start turning up. If the auction pipeline gets cleared out, that will turn around the value in the marketplace.

Jennifer E. Garrett is a Seattle-based freelance writer. For questions or comments about this article, e-mail articles@scotsmanguide.com.