The big news last week on the housing price front was the jump in the S&P/Case-Shiller Home Price Indices. Even though the bounce was rather slight -- the widely cited index registered a year-over-year increase of just 0.6 percent -- the media glommed onto it as evidence that the housing market might be stabilizing.
While great attention gets paid to the slightest gyrations in the oft-cited index, there is another, less-cited component of the Case-Shiller series that's even more interesting. It's the index value itself -- graphed above. And it essentially tracks housing prices in light of their January 2000 baseline. As this chart shows, the 20-city composite index hit a high of 206 before falling to 145, a decline of roughly one-quarter from its peak. The 10-city index peaked at 226 before falling to 156, a decline of approximately a third. Still, that's roughly 50 points above 2000 levels. Nationally, housing prices today are in line with their 2003 levels.
The map above -- prepared by the Martin Prosperity Institute's Zara Matheson -- plots the Home Price Index values for the 20 metro regions in their series. The graph below charts the movement in the Index values from 1987 to present. Even though housing prices have declined everywhere across the country, prices have held much better in some places than others. A 100-plus point difference separates the highest city from the lowest one on the index. Greater Washington, D.C. tops the list with an index value of 176.5. Housing prices are above 150 in four other locations -- Los Angeles (172), New York (170), San Diego (158), and Boston (151). Sure, housing prices have come down from their peak in these cities, but they remain considerably above 2000 levels. Five regions have index values between 125 and 150: they too remain considerably above 2000 levels -- Portland (144), Seattle (144), and San Francisco (135) on the west coast, which sort of make sense; and Miami (147) and Tampa (136) in South Florida which are, frankly, more puzzling, at least to me. Nine more regions have index values between 100 and 125, meaning they are up just a bit or more or less back to where they started a decade ago -- Denver, Chicago, Minneapolis, Charlotte, Dallas, Phoenix, Atlanta, Las Vegas, and Cleveland. Only one region, greater Detroit, has seen its housing prices fall below 2000 levels. With an Index value of 70, housing prices in Detroit have fallen to levels last seen in the 1990s. Some experts believe it will take as much as two decades until Detroit area housing prices rebound back to their pre-crisis peak.
Source: From dcist.
I was interested in looking at what might be behind this pattern. With the help of Charlotta Mellander, we compared these Case-Shiller values to a range of regional economic and demographic indicators. We performed a simple correlation analysis and ran a series of scatter-graphs. At 20, the sample size is beneath the threshold required to generate really robust statistical conclusions. And I remind readers that these measures point to association among variables and do not imply causation. Of course, other factors and relationships which we don't account for may complicate the picture. Still, some findings are interesting enough to warrant discussion.
Source: Average income is from the American Community Survey.
The golden rule says: follow the money. A wide range of research, as well as plain old common sense, says housing prices will be higher where people are more affluent. We looked at three basic measures of economic wealth -- economic output, income, and wages. All three are associated with higher Case-Shiller values. But just one of these -- the correlation for income -- was statistically significant (.5).
Economists have long noted the connection between education levels or human capital, economic success, and housing prices. Not surprisingly, we find that housing prices are associated with human capital, but the correlation is not statistically significant (most likely due to the small number of observations).
Housing prices often reflect local labor markets, as Ryan Avent notes. A study I conducted with Mellander found that housing prices were considerably higher in areas with higher percentages of the creative class as well as higher levels of human capital. We again find a close connection here, on two levels. On the one hand, there is a positive and significant correlation (.51) between housing prices and the creative class -- that is, the share of workers in science and technology; arts, media and entertainment; and professional jobs. On the other hand, housing prices are negatively associated (-.65) with blue-collar, working-class jobs.