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.

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