Jul. 27, 2006 - What the [deleted] does this mean? CNNMoney report that NY & NJ housing 43% overpriced
Why it is so hard to apply national housing data to Manhattan
Curbed.com posted a link on Thursday to a CNN Money article, with the Curbed ‘headline’ “Report: NY/NJ housing 43% overpriced”, which made me go “hmmm … that seems like a simple statement of fact, but I wonder what that really means?” After reading the article (headlined “most overpriced home markets”) I still wondered, so I checked out the website for the source of the data, Local Market Monitor, which charges thousands of dollars to subscribers to get their data,, but I still wondered, so I checked out the government sites cited as sources for the data.
Trying to understand the data is … difficult
I am still wondering.
I am still wondering about what possible value this data has about New York and New Jersey.
I am still wondering about what Les Christie, the CNN Money staff writer, thinks the utility of the data is.
I am still wondering what Ingo Winzer, the president of the firm that came up with the data, thinks the utility of the data is.
And I am really wondering about what media may pick this up and what take they will have on the data. Like Curbed.com, they may simply report as “fact” that New York and New Jersey housing is over-priced by 43% -- whatever that means.
Is the NY/NJ “market” equivalent to Oklahoma City? (hint: you don’t need a hint)
If I have not lost you yet, one of my problems with the data is that LMM “tracks” 100 geographic housing “markets” and appears to present them as (in some sense) equivalent (as the article talks about, for example, how many markets showed increases or reductions in affordability) but these “markets” are extremely disparate in size. (I will explain below.)
Another problem I have in understanding what to do with this data (what sense to make of it) is that half of the equation (LLM compares sales prices to “equilibrium” prices in these markets) is invisible and not externally sourced.
“equilibrium” pricing is a bit mysterious
Presumably there is proprietary data for the “equilibrium” prices, but since that is the key to understanding whether selling prices are over-priced or not, it would inspire more confidence if we had any idea where that comparator comes from.
“Company president Ingo Winzer bases those values on local economic and population growth, construction costs, vacancy rates, household income in the area and interest rates.”
So I guess this has something to do with higher “equilibrium” pricing being supported by positive local economic growth, and increasing local population, and higher construction costs, and lower vacancy rates, and higher household income in the area, although I have no idea why interest rates make any significant difference.
We should Manhattan only be twice as expensive as Oklahoma City??
The LMM “equilibrium” price of $300k is about 20% higher than Baltimore’s $243k, about a third higher than Durham’s $220k, only about half higher than Indianapolis at $198k, and only twice as high as Oklahoma City at $149k. Nothing against any of these fine cities, but I just don’t get the value of data and analysis that suggests that housing here should cost only twice as much as housing in Oklahoma City. It is just too darn crude a data “point” to be useful.
And, sorry – but most people in Manhattan would be offended if one argued that local housing here should only be twice as expensive as in Oklahoma City. Or even Durham.
Oklahoma City has a population just over a half million, according to CNNMoney. I can’t tell quite what “New York – North New Jersey” covers, but if it is the Census Bureau’s Standard Metropolitan Statistical Area, I think it includes Long Island, Westchester and several north Jersey counties, all of which must have a combined population more than thirty times the size of Oklahoma City. So why treat these two markets as equivalent for any purpose??
Another problem: most Manhattan sales data is invisible for this report
The United States OFHEO is identified as the source for sale price data, but (unless I am misreading the OFHEO website) the OFHEO House Price Index data has two serious limitations for Manhattan real estate. First, they track sales of single family homes – not apartments in multi-unit housing, so Manhattan is essentially invisible. Second, they track only transactions with mortgages under (this year) $417,001. So cash transactions, non-mortgage transactions, and transactions in which more than $417,000 was secured do not figure in the Housing Price Index, which suggests that many purchase in the New York metropolitan area are no included in this data.
The OFHEO.gov FAQ page describes the Housing Price Index as “based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included”
I have now exhausted even myself with this, so I will come to a point. The CNNMoney article and the underlying LMM analysis don’t seem to have much validity for Manhattan. I am not saying that housing here is not over-priced, just that you can’t prove it by this article.
I wonder what Jonathan Miller thinks of this article….
© Sandy Mattingly 2006
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