Over at Time Magazine`s Curious Capitalist, Justin Fox compares the Case-Shiller Housing Price Index which measures appreciation since 1987 to my Creativity Index. His results, here, and after the jump. Michael Wells weighs in with a comment on this blog. Michael has much to be happy about given Portland`s long and short-run performance.
I`m actually struck by the pattern Fox documents and believe it fits in rather well with my theory. I promise to dig into it even more once I`ve had a chance to digest the data. But for now, let me just jot down some quick reactions.
First of all, my earlier post which Fox points to was about the recent turnaround in the Case-Shiller Index as was a post here earlier today.
That said, over the long-run, the big outliers in terms of the Creativity Index boil down to two cities – Miami and Las Vegas – both of which perform much better on the Case-Shiller Index over the past two decades than their (low) scores on my Creativity Index would suggest. One explanation might be that both regions have high Gay Index values (their technology and talent scores are low) which as Charlotta Mellander and I have found are extremely closely associated with median housing prices.
However, I think there is another, even more significant factor at work. The significant real estate appreciation experienced by Miami and Las Vegas over the past couple of decades was speculative and thus badly out of whack with their economic fundamentals. These are fun-and-games resort destinations which saw huge and unsustainable gains during the go-go years of the housing boom.
My main point is that now things are coming back to earth – and more into line with what the Creativity Index would predict. After two decades of significant appreciation Miami and Las Vegas have experienced big declines and are headed for even bigger ones, as the Case-Shiller Index documents. (I live in Toronto and want a house in warm weather and I`m prepared to wait it out another year or two until the south Florida market starts to really correct). My top Creativity Index regions – places like San Francisco, DC, Boston, Seattle, Portland, Denver, etc. – are showing mixed performance – some are declining more than others. But, if my priors are right, they should decline much more modestly than Miami and Las Vegas, and rebound quicker once things start to turn around. A number of these markets are actually seeing mixed performance. The DC market, which I know very well (having sold a house there this past summer) is declining overall on Case-Shiller. But it is really a tale of two markets with steep declines in far-off suburbs, while the city and close-in markets seem to be holding on.
To my mind, the biggest outliers in in terms of short-run Case-Shiller performance are San Diego and Charlotte, though both are in sync with the Creativity Index over the long-run. San Diego has been hard hit in the past year or so, which I would not have expected given its location, long-run super-star status, high-tech economy, and Creativity Index score. But the region is known for boom and bust real estate cycles. Charlotte has been much stronger than I would expect in the current downturn, perhaps due to its strong financial sector.
Fox says this is the last of his housing market posts for a while. I hope not. He`s been doing yeoman`s work helping advance our understanding of the unfolding dynamics of the housing and real estate markets which are sure to play a big role in U.S. and regional economic performance over the next couple of years. Anyway, I have another one to throw into the mix: Housing in Toronto, Vancouver, Sydney, Melbourne, and Brisbane continues to appreciate like crazy. Canada and Australia have surged ahead of the US on the UN Human Development Index. Might global indicators like the UN Human Development Index or my own Global Creativity Index help to explain these differences among international housing markets.
Creativity Index Score, followed by Case-Shiller Index in percentages, January 1987-current for 14 regions
San Francisco, 2, 136%
Boston, 5, 30%
Portland, 7, 141%
Washington-Baltimore, 11, 90%
Denver, 14, 47%
San Diego, 19, 117%
New York, 20, 48%
Los Angeles, 31, 129%
Chicago, 39, 64%
Tampa, 51, 45%
Charlotte, 60, 14%
Miami, 72, 94%
Las Vegas, 95, 72%
Cleveland, 118, 17%