The Case-Shiller Index is a popular subject of conversation in the public, and consternation in the real estate profession. Like any statistical model, it makes it's points with a degree of subjectivity. When applied to the entire American Nation, a nation of 300 million people, the macro-trends don't often apply as an overlay to the trends in local micro-markets.
The May, 2008 data is showing the tale of three real estate markets:
- Those in Massive Decline with no end in site
- Those in the Throes of Correction, with price declines starting and inventory rising
- Those already at Bottom of Market, who are starting to show signs of seasonal balance adjusted for a marketplace with already wildly out of line inventory levels.
What the numbers show uniformly is that every market has problems. There are no markets cranking along like 2005, but there are markets moving faster in reverse than they did in their halcyon days three short years ago.
ON A LOCAL LEVEL
The image I constructed above shows the relationship between the Case Shiller Index and Colorado Springs Housing with year-over-year measured comparisons. As a point of reference, and for those who are statistical wonks like me, here is the disclosure: I don't use the same formula C-S uses in creating their graph. Theoretically, their graph shows median values and the percentage change in those values in a year over year basis. But how they get to that data for an individual market and then how they blend that data together to obtain the values they get for the nation are a mystery to me. The Colorado Springs graph is far more simple: a comparison of quarterly values for the start of every sales quarter for the last 15 years. Theoretically, this is a legitimate comparison because it maps the same trends. But Case and Shiller applied some phD to generate their number. I applied Excel. If you don't like it, comment away!
The results confirm the line of argument made locally: we didn't go up as high as other markets (we were booming big in 2001... take a look at the post 9/11 impact) and correspondingly our crash landing looks like a perfect touchdown compared to most other market. We are presently in negative territory, but most American markets would prefer our 4% dip to their 16% dive last month.
Like Freakonomics, Case-Shiller seems to apply "price is the only object" as the single way to understand real estate (give credit to Zillow, they are now accounting for demand in calculating their values). Supply and demand plus demographics also influence values, probability of sale and how long it takes to get to the finish line.
Metrostudy last week supplied data to the Colorado Springs Home Builder's Association
(this link is the whole PDF'ed powerpoint). When I make projections for ERA Shields and my sellers, I pay special attention to the ratios between supply and demand and demographic growth. Of the 20 markets Metrostudy supplies data for, only four markets had smaller supplies in relationship to months of inventory. One of those was Denver and the other three were in Texas.
Many markets recently regarded as healthier have all taken negative turns (Charlotte, Seattle and Minneapolis among them) in regards to their inflated inventory. This while Colorado is one of the top 10 states in the nation for growth and a Brookings Institute report last week localized the entire Front Range (Fort Collins to Colorado Springs) as the site for the greatest growth and economic expansion in the US over the next 30 years.
Great news... if you're a buyer.
If you're a seller, you're probably wondering where those damn buyers actually are.