How credible is Case-Shiller to NYC?

Editor's note: This article is reposted with permission by The Real Deal. Click here to view the original article.

By GABBY WARSHAWER

NEW YORK -- While there is no question that the Standard & Poor's/Case-Shiller 20-city housing index is an influential measure of the country's shifting real estate fortunes, some New York-based number-crunchers argue that it says almost nothing about the city's -- particularly Manhattan's -- real estate reality.

Still, New York City publications often cite the index (one recent story ran under the headline "Housing Index: New York home prices decline 10 percent").

"Case-Shiller is an index of single-family homes, and it's terrific for measuring housing markets that are heavily concentrated with single-family homes," said Jonathan Miller, president and CEO of appraisal firm Miller Samuel, which itself produces widely referenced market reports for New York City.

"But it doesn't include co-ops or condos, which account for 98 percent of Manhattan's nonrental properties."

Case-Shiller does have a separate condo index that includes the New York region, but condo sales are not taken into account in the influential 20-city housing index.

Miller believes that drawing conclusions about the city's real estate market -- be it "Manhattan, or any of the boroughs, which have a large proportion of co-ops" -- is "a misapplication of the index."

Other New York analysts take issue with the geographical scope that the index -- founded by economists Robert Shiller, Karl Case and Allan Weiss -- uses for the New York region.

"It takes into account counties in New Jersey and Pennsylvania," said Noah Rosenblatt, founder of the brokerage UrbanDigs, which plans to start releasing its own New York market data in the near future. "If you're following Manhattan real estate, you can't compare places like that to Manhattan."

Sofia Song, vice president of research for StreetEasy, a real estate data Web site, is also critical of the index's geographic definition of the New York region.

"It's just unbelievable that they're including Pike, Pa., and Fairfield, Conn.," she said. "It includes both the suburban market and the second-home market."

But Case, a professor of economics at Wellesley College, defended the index, saying that co-op sales have too many variables to be included.

It should be noted that the three economists sold their company, Case Shiller Weiss, in 2002 to the information management company Fiserv, which then partnered with Standard & Poor's to develop tradable options and futures based on the index.

Shiller and Case still play advisory roles with respect to the S&P/Case-Shiller Home Price Indices.

"Cooperatives differ in terms of their financial fundamentals," Case wrote The Real Deal in an e-mail. "I bought a co-op in New York back in 2004. I looked at a large number and found them very difficult to compare. Some have large common mortgages and high monthly payments, while others have very little common debt ... and these things change."

He said, however, that it was "also unclear to me that the relationship between the co-op market and the single-family market is dramatically different over time." ...CONTINUED

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