Does Case-Shiller Tiered Price Indexes Help Understand Competing Market Segments? ChatGPT Weighs in!

The Case-Shiller Tiered Home Price Indexes are a valuable tool for monitoring changes in the housing market. These indexes track fluctuations in home prices across various price ranges, using data from home sales in the previous month that has been adjusted for inflation. The Tiered Home Price Indexes aim to offer a more nuanced view of the housing market than the general Case-Shiller Home Price Index. By examining price trends across different price ranges, the Tiered Indexes can highlight patterns in the market, such as which price ranges are experiencing faster appreciation or depreciation.

The Tiered Home Price Indexes are helpful for various stakeholders, including real estate investors, economists, homebuyers, sellers, lenders, and policymakers. These indexes are available for all 20 major metropolitan areas in the United States and the country as a whole.

Sid: Could you offer a detailed clarification on the rationale behind employing Case-Shiller Tiered Home Price Indexes?

ChatGPT: The Case-Shiller Tiered Home Price Indexes are employed to provide a more detailed and accurate understanding of housing market trends by segmenting the data based on home price tiers. Here are some key rationales behind their usage:

1. Granularity of Analysis: The indexes divide the housing market into three tiers based on the sales price of properties. The three tiers are high-tier, mid-tier, and low-tier. By dissecting the market in this way, analysts and market participants can examine trends and changes specific to different price segments. It facilitates a more detailed analysis of the market rather than just a general overview.

2. Differential Market Dynamics: Different price segments within the housing market may exhibit varied dynamics and trends. By examining each tier separately, it becomes easier to discern unique patterns and characteristics within each segment. For example, high-tier properties might have their own demand-supply dynamics and drivers compared to low-tier properties. Understanding these differential dynamics is crucial for informed decision-making.

3. Sensitivity to Market Shifts: The Case-Shiller Tiered Price Indexes provide insights into how different price segments respond to changes in market conditions, such as economic booms or downturns. For instance, during a period of economic expansion, high-tier properties might witness a surge in demand, resulting in faster price appreciation than mid-tier or low-tier properties. This sensitivity analysis allows market participants to gauge the resilience or vulnerability of each segment to market shifts, helping them make more informed investment or selling decisions.

4. Enhancing Price Measurement: The Case-Shiller Tiered Price Indexes help mitigate issues related to "mix-shift" in housing markets. Mix-shift refers to changes in the composition of sales within a market, such as a higher proportion of high-tier properties being sold instead of low-tier properties. If left unaccounted, mix-shift can distort price measurements and misrepresent market trends. By isolating and tracking price changes within each tier separately, the indexes provide more accurate and reliable price measures.

5. Comparative Analysis: The tiered indexes enable comparison across different price segments and geographies. They allow market participants to compare the performance of high-tier properties in one region with those in another region, or compare high-tier properties with low-tier properties within the same region. This comparative analysis enhances the understanding of relative market performance and assists in identifying investment opportunities or market inefficiencies.

In summary, the rationale behind employing Case-Shiller Tiered Home Price Indexes lies in their ability to provide a more detailed analysis of housing market trends and capture differential dynamics among price segments.

Sid: I gathered this data from Case-Shiller tiered price indexes for the Los Angeles market. Please analyze these price tiers and determine which had the highest and lowest percent price changes between July 2022 and June 2023. Also, can you explain how these tiers compare to the Aggregate index price?

ChatGPT: To determine the highest and lowest percent price changes between July 2022 and June 2023, we can calculate the percent change for each tier and compare them.

First, let's calculate the percent change for each tier:

- For the Low Tier:

Percent change = (June 2023 value - July 2022 value) / July 2022 value * 100

= (487.53 - 486.86) / 486.86 * 100

= 0.138%

- For the Middle Tier:

Percent change = (June 2023 value - July 2022 value) / July 2022 value * 100

= (420.92 - 423.06) / 423.06 * 100

= -0.505%

- For the High Tier:

Percent change = (June 2023 value - July 2022 value) / July 2022 value * 100

= (380.35 - 384.23) / 384.23 * 100

= -1.010%

Comparing the percent changes, we can see that the highest percent change occurred in the Low Tier with a 0.138% increase, while the lowest percent change occurred in the High Tier with a -1.010% decrease.

In comparison to the Aggregate index price, we can observe the following:

- The Low Tier had a higher percent price change (0.138%) compared to the Aggregate index price (0.000% as it is not specified in the data).

- The Middle Tier had a lower percent price change (-0.505%) compared to the Aggregate index price.

- The High Tier had an even lower percent price change (-1.010%) compared to the Aggregate index price.

This suggests that the Low Tier prices experienced a slight increase, while both the Middle and High Tiers experienced a decrease in prices during this period. The Aggregate index price does not provide specific information, so we cannot compare it directly to the tiered prices.

Sid: Have the Fed's rate hikes, which began in July 2022, had a greater impact on higher-value properties, resulting in a drag on the "Aggregate" that also includes lower-value properties?

ChatGPT: Based on the provided data alone, it is difficult to definitively attribute the changes in the price tiers and the aggregate index to the Fed's rate hikes. While we can observe varying percent price changes among the different tiers, it is important to consider multiple factors that can influence housing prices, including but not limited to interest rates.

The impact of Fed rate hikes on higher-value properties versus lower-value properties can be influenced by several factors, such as the demand for different tiers, local market dynamics, and economic conditions. Higher-value properties may experience a relatively greater impact from rate hikes as they are more sensitive to changes in borrowing costs. Conversely, lower-value properties may be less affected, as buyers of those properties may be less reliant on borrowing or more sensitive to changes in lower interest rate environments.

To better understand the relationship between the Fed's rate hikes and the impact on different property tiers, a comprehensive analysis incorporating additional data and factors would be necessary. This could include studying trends in mortgage rates, buyer behavior, economic indicators, and specific local market conditions to assess the relative effects on different property value segments.

Note: Case-Shiller Index is a registered trademark of S&P CoreLogic.