Methodology: StreetEasy Price Indices
- By John Wiley August 18, 2015
Understanding the direction in which New York City real estate prices are trending is an immensely important task for housing researchers like us at StreetEasy. With the release of our Q2 Market Reports for Manhattan and Brooklyn, we introduced our new price metrics, the StreetEasy Price Indices, which build upon the now retired Manhattan Condo Price Index. The StreetEasy Price Indices bring three key improvements to the way we track price movements in New York City:
- Indices are now available for Brooklyn and Brooklyn submarkets, in addition to Manhattan.
- Co-ops and townhouses, in addition to condos, are now included in the set of properties on which the index is based, providing a fuller picture of the NYC housing market. Separate indices for condos and co-ops are also available.
- The new price metrics are dollar denominated, a useful tool to understand the evolving value of NYC real estate and differences in value between regions.
As Brooklyn real estate closes the price gap with Manhattan, the need for understanding Brooklyn trends increases. Unlike Manhattan, where a significant share of the housing stock is condos, Brooklyn is dominated by townhouses and co-ops. The need for expanding not just geographic coverage, but product coverage, was apparent. As city records improved, our ability to match sales of co-op units to previous sales of the same unit improved as well. The set of flagship StreetEasy Price Indices for Manhattan and Brooklyn regions now include all three home types for more holistic coverage and better cross-region comparisons.
To ease understanding, price movements in Manhattan and Brooklyn can now be interpreted in dollar values without sacrificing the benefits of a repeat sales methodology. Frequently reported monthly or quarterly median sale prices suffer from product mix problems. What this means is median sale price changes from month to month are driven not only by market price trends, but by the change in the kinds of properties sold in any given month. This leads to greater volatility and false conclusions as some time periods may have an abundance of sales of certain types of properties. For example, one month may have a lot of foreclosure resales that pulls the median down, or a different month may have a lot of high-priced sales in Tribeca, and that pulls the median up. This product mix problem is why an index based on median recorded sales is volatile and unrepresentative of the entire market, which are shortcomings that the dollar denominated StreetEasy Price Indices avoid. The chart below highlights how the product mix bias makes the median sales price highly volatile when compared to the StreetEasy Price Indices.
The StreetEasy Price Indices maintain a repeat sales approach, so changes in the indices from month to month, quarter to quarter, year to year, or decade to decade are driven by price changes within individual properties; the product mix problems are minimized.
To dollar denominate the series without emphasizing only the products sold in any one month, we instead use median price information from the entire stock of housing available over the last two decades. The level of the repeat sales index is set to minimize its difference from the entire history of median recorded sale prices (for the given area) of condos, co-ops, and townhouses, not just any random month. By incorporating median price information across the entire history, we can more confidently interpret the value of the StreetEasy Price Indices as the value of real estate in that region, not just the price of the unique homes sold in any given month.
The StreetEasy Price Indices build off what worked with the Manhattan Condo Price Index, and adds new features making these tools more comprehensive and understandable. The repeat sales index construction method is an accurate way to look at price appreciation in real estate. Those repeat sales now consist of condos, co-ops, and townhouses, together representing the vast majority of the city’s housing stock. The dollar denomination makes it possible to discuss the difference in prices between Brooklyn and Manhattan too and increases the interpretably of our most important metrics. Finally, the index now covers Brooklyn, adding New York City’s most populous borough and one of its most exciting real estate markets to StreetEasy’s areas of expertise.
 For Manhattan this spans from 1995 to current; 2004 to current for Brooklyn.