Problems With Case/Shiller Index For Us

Posted by urbandigs

Wed Aug 29th, 2007 01:01 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.

10-city-housing-index.jpg

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

nyc-metro-2-yr.jpg

SINCE JAN 2002 - NYC Metro Home Price Index

nyc-metro-5-yr.jpg

SINCE JAN 1997 - NYC Metro Home Price Index

nyc-metro-10-yr.jpg

Allllllrighty then!


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