– An ‘index” is an easy way to compare different markets over time (i.e. – cumulatively, rather than annually or quarterly) RELATIVE to each other. An index takes a year (any year) and assigns a value to home prices for that year (say ‘100’). That’s called the ‘base year.’ Then – for any other year, home prices can be expressed in terms relative to that ‘base year’ index value. So, when comparing say Detroit and San Francisco (which have very different home prices), the index simply compares the relative change each market has experienced.
– Index values are also helpful in showing CUMULATIVE changes in home values and include the ‘compound effect’ over many years.