Problems With Case/Shiller Index For Us

Posted by Noah Rosenblatt on August 29, 2007 at 1.01 PM

A: You may have read in the past few days that the Case/Shiller Housing Index for the NYC Metro area experienced a decline of 3.4% year-over-year. I know what your saying, "But Noah, you keep saying that Manhattan inventory declined and I don't see where prices are declining?". Well your right! Manhattan inventory DID decline 32% since June of 2006 and I have NOT seen any significant correction in prices since the frenzy months of early 2007! So what gives? It's the index people! I'll explain why it just can't be used for Manhattan buyers or sellers as an accurate gauge to our real time market values.

First, the news. According to CNN Money article titled, "Home Prices: No Relief on Horizon" yesterday:

On Tuesday, Standard and Poor's said its nationwide S&P/Case-Shiller Home Price Index fell 3.2 percent in the second quarter, compared with a year ago. For the three months ended June 30, prices dropped 0.9 percent from the first quarter.

Major housing markets showed worse declines. The Case-Shiller index covering 20 top metro areas for the month of June fell 3.5 percent, and the 10-city index dropped 4.1 percent year-over-year.

To understand WHY I think the NYC Metro Index should not be seriously considered as accurate for Manhattan, we must look at what areas make up the index in the methodology paper of the index itself. For the NYC Metro Area, counties included are:

Fairfield CT, New Haven CT, Bergen NJ, Essex NJ, Hudson NJ, Hunterdon NJ, Mercer NJ, Middlesex NJ, Monmouth NJ, Morris NJ, Ocean NJ, Passaic NJ, Somerset NJ, Sussex NJ, Union NJ, Warren NJ, Bronx NY, Dutchess NY, Kings NY, Nassau NY, New York NY, Orange NY, Putnam NY, Queens NY, Richmond NY, Rockland NY, Suffolk NY, Westchester NY, Pike PA

Would you consider these counties a good representation for co-op, condo, and condop prices here in Manhattan? I certainly wouldn't.

That's not to say I don't believe in the goal of this index or to diss Professor Shiller's ultimate goal, which is in the realm of creating a housing exchange and adding transparency to home prices in major cities. That's all great stuff, but I just don't think we can follow it too closely! So for me, this index is un-usable and I think is more for those buyers and sellers in the suburb counties of the metro areas; I also think it affects buyer psychology and confidence.

However, curiosity kills. So lets see what the NYC Metro Index has done over a few different time periods.

SINCE JAN 2006 - NYC Metro Home Price Index

SINCE JAN 2002 - NYC Metro Home Price Index

SINCE JAN 1997 - NYC Metro Home Price Index

Allllllrighty then!

Comments (13)

Great post Noah. If people could see what is behind that headline they would realize the seriousness of being mislead by the media. People see New York metro area and theystart at the Empire State Building and stop at the Hudson and East rivers. Amazing how the press distorts the truth. But money has been made and will be made off of sensationalism. I thank you for that media. Again, great post, you nailed it. Keep us informed of the frontlines!

Posted by Steve | August 29, 2007 2:29 PM

will do Steve. Although I will write about the bad stuff if it does happen. Hopefully readers appreciate the unbiasness of the site.

thx

Posted by Noah | August 29, 2007 2:35 PM

Noah,
I think you have a great blog. I appreciate your candor and your openness to addressing the "Good, bad, and ugly" issues that relate to NYC real estate.
My overall impression is that you believe that NYC real estate will probably decline in the immediate future.
I wonder if you find yourself conflicted when advising clients on whether now is really a great time to be buying.
I realize that every client has unique circumstances which would influence their decision. But in final analysis, I don't know many people who are happy to buy something today at full price if tomorrow
they can buy it at a considerable discount.
Anyway thanks for the great blog,

Posted by mk | August 30, 2007 10:02 AM

MK - Thanks. You know, Im just honest with them. I tell them the red flags I see, I make sure their strategy is long term, and that their alternatives really dont make much economic sense. If things line up, I then advise them on the best of group property and bidding strategy. In the end, Im more like a consultant.

9/10 times a tell a client NOT to go for a particular property.

I also must have advised at least 15 buyers so far this year to RENT, and not to buy due to reasons they told me about their strategy or situation. I have no problems doing that.

Service is key, in my mind. And having a broker you trust, means having a lifetime broker. That doesnt mean Ill do this for life, but it helps build a good reptuation for my future business and goals.

But to answer your questions, I have no problem telling a buyer what I truly think. If they still decide to buy, I help them find the best value possible

Posted by Noah | August 30, 2007 11:19 AM

thanks for the info..prices really went down this time..

Posted by larnaca | January 4, 2010 11:11 AM

too bad..there is a decline//

Posted by limassol | January 6, 2010 5:03 AM

thanks for this post..got me on the indexes..

Posted by cyprus | January 8, 2010 6:28 AM

not again..another decline in the Case/Shiller Housing Index

Posted by jumeirah | January 11, 2010 10:50 AM

@jumeirah..yes,,it really declined based on the figures stated above..

Posted by paphos | January 13, 2010 12:46 PM

plus i had this problem before when i was using the case/shiller index..