Looking at Case-Shiller levels

By Felix Salmon
July 28, 2009
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One of the things I like about the Case-Shiller indices is that they’re all based on a level of 100 at January 1, 2000, which by happy coincidence happens to have been a pretty “normal” time in the real-estate market, as such things go. A glance at any Case-Shiller release, then, gives you an immediate take on the cost of housing now compared to 2000. Rather than look at first derivatives or second derivatives, then, I thought I’d take a look at the absolute levels for a change.

At the height of the bubble, the levels got truly crazy, with Miami topping 280 at the end of 2006 and Los Angeles spending a full six months over 273. New York never got that bubblicious: its height was 215, in mid-2006. (An up-to-date Excel spreadsheet of all the datapoints is here.)

Today, New York is the most expensive (compared to its 2000 levels) of all the 20 cities in the Case-Shiller index: it stands at 170.5, down just 21% from the high-water mark. In comparison, Miami, at 144.6, is down 49% from its high, while Los Angeles is down 42%.

The cheapest city, by 2000 standards, is Detroit, the only city in double digits, which now stands at just 70. It’s down 45% from its end-2005 high of 127.

If housing kept track with CPI inflation, the Case-Shiller index would be at 125 now; in fact, it’s at 140. But of the 20 cities on the Case-Shiller list, just 9 have managed to outperform inflation: Boston, Los Angeles, Miami, New York, Portland, San Diego, Seattle, Tampa, and Washington. The big outperformers — New York and Washington — more than make up for the underperformers like Detroit, Cleveland, and Atlanta.

My gut feeling is that this means New York and Washington have significantly further to fall, in terms of housing prices; even Miami, at 144, is still looking pretty rich. San Francisco might look cheapish at 120, but it was artificially inflated, at the beginning of 2000, by the dot-com bubble: just a year earlier it was at 85.

Overall, I think people looking for a bottom here are being premature. There’s still a huge overhang of unsold housing, and it’s still very hard to buy a house, if you don’t have a large down-payment — and given the US savings rate over the past few years, not so many people have that sort of money to hand. The precipitous part of the decline might well have come to an end: from here on in we might see a slow grind lower over many years. Only if you can live with that kind of long-term price decline should you be even thinking about buying a place right now.

Update: Jonathan Miller notes that the Case-Shiller index for New York excludes both co-ops and condos, and indeed covers less than a third of all sales in the city. So maybe it’s not particularly useful.

Update 2: Ryan, too, is unconvinced.

14 comments

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Great post Felix.

It looks locally (Houston) like the low-end has bottomed, but the 400k+ houses are barely selling, but 30-50% haircuts look on the cards for those few that do.

I totally agree that the high-end has a fair ways to fall.

Posted by Jonathan | Report as abusive

Hi Felix – good stuff as always – a couple of comments. 2000 wasn’t normal in NYC with a higher rate of appreciation than at anytime post credit boom circa 2003+. Nasdaq rally fueled a double digit rate of appreciation then. I follow case shiller on a macro level, but in NYC’s case, it doesn’t include co-ops, condos, foreclosures and new development which is at least 2/3 of sales activity. I also find it funny that people are looking for a bottom on CSI data that if the rate of easing continues as it has for the past 4 months, we have several years to go.

Felix,
Could you talk about the (I believe) enormous range within these municipal markets which do not get captured by the aggregated data?

According to this chart Chicago (at 123) should be quite stable by now, as a whole. It is not. With unemployment over 10% already and set to go significantly higher, we are still assuming crash positions in the Windy City. Worse still, in high priced neighborhoods like the North Shore, inventories sit at around 2 years (or more) and prices are probably 40% off peak already. We could easily crash through the “norm” and stay there for many years.

In fact, Chicago is the untold disaster story in national major markets. We sit just below the big four “bust states” and are tracking (albeit less calamitously) Detroit in our plunge. Why we have received so little national media attention to date is a mystery to me.

Any other Chicago readers or informed people with thoughts?

Posted by Kelli K | Report as abusive

If that’s indeed the case for Chicago, I’d assume the city has a more services-based economy today compared to that peer group in the “rust belt” cities ?

Further if that is the case, some unlucky souls just paid a king’s ransom for the Cubbies…Wrigley is great but it’s not like they’ll add 10,000 seats

Posted by Griff | Report as abusive

Griff,
Yes, we have shifted over the past decade into a much more service oriented economy, and a lot of the jobs lost over the past two years are in financial services (many highly paid executives).

As for the Cubs deal, there I’ll disagree. Like a much less successful version of “Red Sox Nation,” Cubs fans are rabid and nationwide. Wrigley could be (needs to be) revamped, could easily seat thousands more and tix would never go begging.

And they’ll still never, ever win a WS Pennant or get a perfect game. Full disclosure: White Sox fan.

Posted by Kelli K | Report as abusive

If you want to look at housing prices adjusted for the CPI, then you need to remove housing from the CPI — and it carries a pretty hefty weighting.

In re: NYC, Case-Shiller has condo indexes for a few cities now, including New York. Check ‘em out.

In re: the “enormous range within these municipal markets,” (absolutely true), Case-Shiller has tiered price indexes now, which at least in the Bay Area substantially capture the distributional dynamics (back to normal prices in the low tier, not yet facing reality in the high tier).

In re: CPI Ex Shelter, yes, that is the series by which you adjust house prices for inflation.

And semi-on-topic: who besides me is offended that with seasonally adjusted Case-Shiller indexes mostly down on the month, all the headlines read, “ZOMG Prices Up”?

Income in the Washington, D.C. area is booming. It’s the biggest source of growth in the U.S. economy. My guess: housing prices will continue to rise in this location.

Posted by Greg Ransom | Report as abusive

I think another thing to keep in mind is that Washington DC proper is probably only a small part of the Washington DC index. I agree it will probably go down some, but it will be in places like Leesburg, Harpers Ferry WV, or places that are closer to Baltimore than DC (these are typically included in the Washington DC MSA, but I’m not sure how much they factor in to the Case-Schiller). Anyway, I would guess if the Case-Schiller was broken out by ‘inside the beltway’ and ‘outside the beltway’ one we see a very different progression of the index. While complete speculation, I suspect this is the case with Manhattan and the rest of New York City. I’ll bet Manhattan has seen much less depreciation than everywhere else.

Posted by chappy | Report as abusive

I do expect these to swing lower in most places for some time yet to come, but the correct comparison for large coastal metropolises is incomes rather than cpi.

The Nasdaq hit its high of over 5,000 in March of 2000.
In August of 2001 it was at 2066.
The Nasdaq bubble pushed up housing prices, too. Remember the CNN stories about 3BR 1BA ranches going for a cool $1 million in Silicon Valley?
How was this a “normal time”?

Posted by PTM | Report as abusive

FYI, even Dean Baker, an economist who sounded early warnings about the housing bubble and sold his own condo in 2004, has come around.

Baker, co-director of the Center for Economic and Policy Research in Washington, bought a five-bedroom house last month for $650,000, which he figures is about 20 percent below what it would have gone for at the peak of the market.

“We feel we got a pretty good deal,” Baker said.

By buying, he accepted the risk that he might lose money if home values keep dropping. “We’ll probably end up more or less even,” he said. “Depending how much further down they go.”

Posted by foobar | Report as abusive

In re: NYC, Case-Shiller has condo indexes for a few cities now, including New York. Check ‘em out.

Thanks – yes I know they track condos now but its not part of the 10 and 20-city composite indices that are widely cited every month.

It would be interesting to see housing stock additions graphed against the Case-Shiller index. The fewer homes added, the more likely it would be that prices fell less than average. Given the limited availability of new home development in the NY region, my gut tells me that Case-Shiller is right where it should be for the NY area.

Posted by Geoffrey Silverstein | Report as abusive