Monday, July 22, 2019

Case-Shiller Condo Market Trends – Boston, Chicago, LA, NYC and San Francisco

-- Intended for New College Graduates --

(Click on the image to enlarge)

Lisa, a new college graduate with co-concentrations in Econ and Math, is interviewing for a Research Analyst position.

Question # 1

Interviewer: Take a look at this graph and tell me if you see any inconsistency in the construction.

Lisa: The Chicago data range is totally out of sync with the rest so it should be graphed as Y2. In other words, instead of just X and Y, I would graph it as X, Y1 and Y2, where Y2 would represent the Chicago value range.

Question # 2

Interviewer: In that case, how would you redefine the Y ranges? Will that rearrangement help the other markets?

Lisa: The Y1 would be compressed down to a range like 200 and 325 with an increment of 25, while the new Y2 range would be 130 to 160, with an increment of 10. And yes, the rearrangement would help project the other markets better, with a more meaningful Y1 range.

Question # 3

Interviewer: Is there any other room for improvement between the graph and the data table? 

Lisa: Yes. The data table is redundant. The data with the legends can be placed right under the months in the graph, making the table irrelevant.   

Question # 4

Interviewer: What about the growth rates? How would you show them?

Lisa: Anyone can eyeball the overall growth rates. The monthly averages are not indicative of anything meaningful here. I would therefore combine both into one more meaningful graph.

Question # 5

Interviewer: Can you make a comparative analysis of two market groups from the data table?

Lisa: The West Coast markets are moving in tandem, while the East Coast markets have forked. Specifically, LA and San Francisco have produced very similar returns, but New York and Boston are surprisingly divergent. Boston has the best return but NYC has been flat.

Question # 6

Interviewer: You just graduated from Columbia so you will know Manhattan RE quite well. Why do you think the Manhattan market has been flat-lining?  

Lisa: Two reasons: a) The cap on SALT has been impacting the high-end Co-op and Condo markets in Manhattan. b) As you know, the foreign buying of the US real estate has tumbled in last two years, which has dealt a serious blow to the Manhattan market, especially the high-end condo market.

Question # 7

Interviewer: If foreign buying is impacting Manhattan, it should impact LA as well. But LA has been strong. Can you explain?

Lisa: Unlike Manhattan, the foreign buyers in that market invest more heavily in private homes, rather than condos per se. Manhattan is essentially a coop and condo market. 

Question # 8

Interviewer: How would you characterize the Boston condo market? Why isn't it showing the same pattern as NYC?  

Lisa: Boston is a more natural market. SALT and foreign buyers do not impact Boston much. It's guided by its own economic fundamentals. That is why, it has responded well to the falling interest rates in recent months.

Question # 9

Interviewer: Based on the above data, would you recommend any of these markets to our clients and, if so, why?

Lisa: Yes, I would definitely recommend Boston. As I said, Boston is a more natural market and, for the analysts, natural markets are always better as the universe of predictive modeling performs work better for those markets.  

Disclaimer - The author is not advocating the Case Shiller indices listed here. Consult your Financial Planner for an appropriate asset allocation model and/or trading strategies for different markets, including housing.

Good Luck!

Sid Som, MBA, MIM
President, Homequant, Inc.

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